Montreal shareholder activist Stephen Jarislowsky is leaving the board of Canfor Corp., despite the fact that his firm, Jarislowsky Fraser Ltd., still owns 18.3 per cent of the forest products giant.
The departure, revealed in the proxy circular for the May 4 annual meeting that was released yesterday, comes as the board is shrinking to eight members from the current 10.
It's also related to the departure of Canfor Corp. chief executive officer Jim Shepherd who said last week he is stepping down, clearing the way for a new CEO who will have the blessing of a group of other major Canfor shareholders, including British Columbia billionaire Jim Pattison.
“The new board is obviously focused on transactions and making something happen for this company,” said Mark Bishop, a Vancouver-based forest industry analyst at RBC Dominion Securities Inc. He added that possible strategies could include selling Canfor to rival West Fraser Timber Co. Ltd., buying fellow Vancouver-based lumber producer International Forest Products Ltd. or acquiring other Canadian or American assets.
In a report analyzing those options, Mr. Bishop pegged a sale to West Fraser as the deal that makes the most strategic sense, but noted that it would likely create competition concerns.
Whatever course the company takes, Mr. Bishop, along with other analysts, read Mr. Shepherd's resignation as a sign of better things to come, raising his recommendation on the stock from “sector perform” to “outperform” and increasing his target price for the stock from $11 to $13.
On the Toronto Stock Exchange Monday, Canfor shares closed up 23 cents or 2 per cent at $10.78. The stock has fallen 12.5 per cent from the previous year.
Canfor's Mr. Shepherd has agreed to stay on until after the company's annual meeting.
Analysts said Mr. Shepherd's exit had been in the cards since Mr. Pattison and two other major shareholders teamed up on a voting pact last month.
The shareholders — Mr. Pattison, New York investment fund Third Avenue Management LLC and Matthews-Cartier Holdings Ltd., representing Canfor's founding Bentley and Prentice families — together own 52 per cent of Canfor's shares, easily outvoting Mr. Jarislowsky.
Mr. Jarislowsky declined comment on Tuesday. A member of his staff said that as he is still a director. he can't talk until the annual meeting.
On March 12, the trio announced it would back its own slate of directors at Canfor's annual general meeting in May and vote against a previously approved shareholders' right plan.
The three shareholders wanted to see better performance at Canfor, which had lagged rivals in terms of acquisitions and profitability, analysts say.
For Example, West Fraser, in November, snapped up 13 U.S. sawmills in a $325-million (U.S.) deal partly financed with refunds from the softwood lumber dispute.
And although Canfor poured millions into its lumber operations over the past few years, the gap between its profit margin and West Fraser's got bigger over the same period, Mr. Bishop said.
The nominees include three newcomers: John Lapey of Third Avenue Management; Benjamin Duster of Watermark Advisors, a merger and acquisitions firm based in South Carolina; and James Shepard, CEO of Vancouver-based heavy equipment dealer Finning International Inc.
One of the biggest problems for Canfor is its fibre supply. Canfor is still paying stumpage (fees that give the company the right to cut a certain amount of wood) to the provincial government as if the wood were healthy, industry observers say.
The wood, meanwhile, is sometimes dry, cracked or warped, making it more difficult and expensive to process. In addition, previous forecasts of shelf-life for beetle-killed wood, or how long it retains market value, have turned out to be optimistic.
But any move by Canfor to request a price break could trigger an angry response from the U.S. lumber lobby, which has already raised objections to provincial forest aid in Quebec and Ontario, maintaining that such aid goes against the terms of last year's softwood lumber deal between Canada and the U.S.
Mr. Bishop noted the potential for friction in a February report.
"We expect any significant reduction in stumpage pricing required to maintain an economic resource may trigger a serious response from the U.S. administration and U.S. lumber lobby alike," he said.
© The Globe and Mail
