Domtar’s acquisition of Resolute Forest Products marks a new chapter—perhaps the last—in the tremendous consolidation movement that has shaped Quebec’s major forest industry over the past 30 years. Resolute, the industry consolidator and the last major Quebec forest company to be listed, is itself being consolidated, but by a foreign company.
Posted yesterday at 6:30am
In May 2021, Groupe Papier Excellence, a division of Asia Pulp and Paper controlled by a wealthy Indonesian businessman, paid $3 billion to get its hands on Domtar, and the Asian group just did it again, this time with $2.7 billion to acquire all of Resolute Forest Products’ assets, as well as its debt and pension plan deficit.
“This is a very nice transaction that offers a 64% premium to the value of Resolute’s shares and a $500 million contingent right back for the countervailing duty deposits we paid to the American have a government,” said Rémi Lalonde, CEO of Resolute, at the end of the session on Wednesday.
We can understand that from a purely financial perspective this transaction represents a great opportunity for Resolute Forest Products shareholders, but this bid also marks the end of an era and a dangerous epic that has spanned nearly 50 years.
The company we know today as Resolute Forest Products is the result of a 200-year history in Quebec’s forest industry and the acceleration of its consolidation beginning in the 1960s.
What started out in 1820, the William Price Company has gradually acquired some of its competitors through various mergers and acquisitions over the past few decades.
Price was bought by Abitibi in the 1970s to form the Abitibi-Price group, while Consolidated, which had bought Bathurst in 1966, was bought by Stone, which became Stone-Consolidated in the late 1970s.
In 1997, Abitibi-Price merged with Stone-Consolidated to become Abitibi-Consolidated. In 2000, Abitibi-Consolidated acquired Donohue before merging with Bowater in 2007 and being renamed Abitibi-Bowater.
In 2009, Abitibi-Bowater shielded itself from its creditors before being reborn in 2011 under a new name, Resolute Forest Products, the most current version… Since then, Resolute has bought out Fibrek and assets of the former Tembec.
Naked administrative offices
The transaction between Domtar and Resolute, announced on Wednesday, will confirm the loss of control of two major Quebec forestry companies. Domtar, which was acquired by the American Weyerhaeuser in 2007, was headquartered in Fort Mill, North Carolina, but retained an administrative center in Montreal employing 350 people.
With Domtar being acquired last year by Papier Excellence Canada, which has its own headquarters in Richmond, British Columbia, one wonders how Montreal can retain both Resolute’s headquarters and Domtar’s administrative center.
Resolute CEO Rémi Lalonde told me on Wednesday that his company’s headquarters in Montreal are not under any threat and that the group will continue to coordinate the activities of its 40 industrial plants in Quebec and the United States from here.
However, there will be inevitable duplications with the Domtar office in Montreal, where cuts are expected, just as eventually certain activities of Resolute HQ will duplicate with those of Richmond HQ, we’re thinking finance or legal here.
This is what happens when you become the consolidate rather than the consolidator.
The overall forest industry activities and related 130,000 jobs in the primary, secondary and tertiary processing sectors should not be too affected by the sale of Resolute, even if the company generates 30% of the activities of this important sector for the regions economy .
Michel Vincent, director of business and markets at the Quebec Forest Industry Council, points out that family businesses and forest cooperatives are the bedrock of the industry.
In addition to large groups such as Kruger or the Filion family, owners of Chantiers Chibougamau, or the Saputo family, which controls Arbec Forest Products, there are several large family companies in Bas-Saint-Laurent, on the north coast, in Estrie, in Beauce or in the Laurentians .
“This activity continues just like that of Resolute. The new buyer cannot move the factories, they depend on the forest, they remain operational,” said Michel Vincent.
Which is theoretically true. But when a hard hit happens, when results aren’t what was expected, the new owner won’t necessarily have the patience and tact to run his factories at a loss while waiting for a rebound. It is the privilege of the consolidator, it is the lot of the consolidate.