Shares of Louisiana-Pacific Corporation (LPX) jumped around 11% on an announcement of its definitive agreement to buy Vancouver-based Ainsworth Lumber Co. Ltd. for $1.1 billion, including debt. Based in Nashville, TN, Louisiana-Pacific is engaged in the manufacture and distribution of oriental strand (OSB) board, engineered wood products, siding, decking, molding and wall coverings at facilities throughout the U.S. and Canada.
Ainsworth is primarily engages in manufacturing and marketing oriented strand board (OSB) products at facilities throughout North America and Asia. Ainsworth is one of largest producer of OSB in North America. Additionally, Ainsworth boasts a strong presence in the Asian market and has recently achieved the status of the biggest supplier of OSB products in Japan.
Over all, the acquisition will increase the production capacity of the company’s OSB segment due to the addition of Ainsworth’s four manufacturing facilities. The Zacks Rank #3 (Hold) company will also gain access into high-growth Asian markets with significant returns.
The acquisition will also allow Louisiana-Pacific to offer diversified OSB products in the industry and also improve its ability to benefit from the high demand for OSB products driven by improving housing market. The transaction is expected to be accretive to the Louisiana-Pacific’s earnings in the first year itself.
Brookfield Asset Management Inc. (BAM), an asset management holding firm, holds 54% stake in Ainsworth through private equity funds. Following the acquisition, Brookfield will have 9% equity interest in Louisiana-Pacific. The company expects to complete the takeover by the end of 2013, subject to customary regulations.
The purchase of $1.1 billion (or Canadian dollar 3.76 per share or $3.58 per share) includes debt and excludes Ainsworth’s cash balance. Louisiana-Pacific will pay 52% of the amount in cash and the remaining 48% in the form of its common shares. Ainsworth’s board of directors have unanimously approved the merger while and Brookfield’s private equity funds have agreed to vote in favor of it.
We believe that the transaction is an excellent strategic fit for Louisiana-Pacific as it will strengthen its presence in the North American OSB segment where Ainsworth primarily operates.
Some other companies that are doing well and deserve a mention include Boise Cascade Co. (BCC) and Rayonier Inc. (RYN). While Boise Cascade has a Zacks Rank #1 (Strong Buy), Rayonier carries a Zacks Rank #2 (Buy).
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