NASHVILLE, TN/VANCOUVER, BC - Louisiana-Pacific's proposed buyout of Ainsworth Lumber Co. Ltd. has been delayed as the two companies face a possible legal fight with U.S. and Canadian regulators over the merger.
Completion of the Sept. 4, 2013 agreement between Nashville-based Louisiana-Pacific (NYSE:LPX) and Vancouver-based Ainsworth (TSE:ANS) for $1.1 billion including debt, was already extended once, from April 18 to June 2. The acquisition would expand the LP's engineered wood building materials' reach in the North American housing market with additional oriented strand board (OSB) capacity. Ainsworth has four OSB manufacturing facilities in Alberta, British Columbia and Ontario, with a combined annual capacity of 2.5 billion square feet (3/8-inch basis).
According to LP CEO Curtis Stevens, the companies are working with the Department of Justice (DOJ) and Canadian Competition Bureau (CCB) regarding the antitrust and competition matters. However, "at this point in time, the regulators have indicated that they will not allow the current transaction to proceed. Therefore to complete the transaction under its current terms, we may have to litigate with the regulators," he said during a May 8 investor conference call.
He added the two companies are continuing "to explore other options with the regulators that could invest divestitures that go beyond what was contemplated in the arrangement agreement. This, of course, would require changes to the arrangement agreement that would need approval from both boards and the Ainsworth shareholders. There's no assurance that such revised deals can be consummated."
A May 8 statement by Ainsworth concurred, adding that "the CCB and DOJ have indicated that they are unwilling to permit the transaction to be completed in the absence of divestitures that would go beyond those contemplated in the arrangement agreement. Because of their indicated positions, it may require LP and Ainsworth prevailing in litigation to complete the transaction under the current terms of the arrangement agreement."
According to Stevens, the companies can extend the arrangement agreement another 45 days until the middle of July.
In the first quarter of its fiscal, LP's OSB segment dropped to $195 million in net sales, compared to $287 million in 2013. It posted an operating loss of $2 million, compared to an operating profit of $98 million in 2013. Costs associated with the Ainsworth transaction, along with the foreign exchange loss associated with the Canadian dollar contributed to some of the loss, said Sallie Bailey, LP CFO and vice president, during the investor conference call.
Overall, LP posted a 16% drop in sales in the first quarter of 2014, posting at $445 million compared to $531 million for the same period in 2013. Founded in 1973, LP produces engineered wood building materials including OSB, structural framing products and exterior siding.
Ainsworth's sales in the first quarter 2014 were $108 million, compared to $142 million in the same period in 2013. Founded in 1952, Ainsworth operates four OSB manufacturing facilities around Canada.
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