Ainsworth Lumber Co. and Louisiana Pacific Corp. have dropped a planned $1.1 billion acquisition by LP of the Vancouver OSB manufacturer, saying both Canadian and American anti-trust regulators had thrown up too many hurdles.
The Canadian Competition Bureau said the acquisition would have meant higher prices and less choice for purchasers of OSB panels. The U.S. Department of Justice expressed concerns about regional concentration. LP would have had 63% of the market share in the U.S. Pacific Northwest.
The regulators said they would oppose the deal unless LP divested other significant assets, something LP was not willing to do.
Ainsworth has mills in B.C., Alberta and Ontario and has a 10% share of the North American OSB market.
The regulators’ opposition has left analysts scratching their heads.
OSB is a commodity sold North America-wide and is part of the larger structural panels market, which includes plywood. OSB prices are driven by demand, not where companies are located, said Rajiv Mukhi, investment analyst with Salman Partners.
“Having all the mills in one area, under one ownership couldn’t have moved the needle too much in terms of the end-user’s price.”
He said the Ainsworth’s North American markets are largely in the U.S. Southwest, a market it shares with other suppliers from throughout North America.
“To me, predicting these commodity prices is a challenge in itself. OSB was up last summer at $430 US per thousand square feet. Today it is $230. To say one company would have the power to really set prices for such a fluid commodity seems really odd to me.”
Ainsworth CEO Jim Lake said in a news release the company is disappointed with the outcome.
LP and Ainsworth announced the deal last September. LP offered $3.76 a share to acquire the Vancouver company, a 30% premium over its trading price then of $2.89.
Ainsworth stock had been trading above $3.50 but fell last week after LP and Ainsworth announced they were abandoning the deal. Ainsworth closed Tuesday at $2.93.
Mukhi views the regulatory opposition as situational and not likely to have any impact on other companies in the forest products sector. He noted West Fraser, Canfor and Interfor have been growing in the U.S. South with no regulatory issues.
He also said that for Ainsworth’s major shareholder, Brookfield Asset Management, the LP deal was an opportunity but added: “For Brookfield, there is no rush to get out of this investment.”
