On Monday, shareholders with Resolute Forest Products (TSX,NYSE:RFP) voted in favour of an offer by Richmond-headquartered Paper Excellence Group to buy the company for US$2.7 billion ($3.7 billion Canadian) through its newly acquired subsidiary, Domtar, and affiliates.
When the merger is complete -- expected in the first half of 2023 -- it will make Paper Excellence one of North America’s largest forestry companies, with more than two dozen pulp, paper and packaging mills and 17 lumber mills in Canada and the U.S.
Combined, the acquisition of Resolute and last year’s acquisition of Domtar for US$3 billion ($4 billion Canadian) would represent an investment of $7.7 billion. Paper Excellence will soon rival West Fraser Timber (TSX:WFG), which has a market cap of $8.6 billion, as North America’s largest forestry company.
The Paper Excellence Group also owns two pulp mills in France and 49.41 per cent of the massive Eldorado Brasil Celulose pulp mill in Brazil. Last year it received approval to acquire 100 per cent of the Brazilian company, though the transfer was hung up in legal wrangling. Last week, a Brazilian court reportedly cleared the way for the final transfer of the company.
Given that the company started with a single pulp mill in Canada in 2007, its recent growth spurt has been remarkable in its scale and speed.
“The growth has definitely been impressive,” said Kevin Mason, managing director of ERA Forest Products Research. “And there’s been a bit of a pivot. Traditionally, it was really pulp focused. But with Domtar, you’re getting into being the biggest copy paper, white paper producer in North America. And then Resolute … they’re the biggest newsprint producer. Now you’ve got lumber operations, as well as pulp, and some other paper assets.”
Paper Excellence is owned by Indonesian businessman Jackson Widjaja and is one of four business units of International Paper Excellence Group. Paper Excellence did not respond to a request for an interview for this story.
Widjaja entered the Canadian pulp and paper scene with the acquisition of a bankrupt pulp mill in Saskatchewan. Within a few years, he had acquired several more pulp and paper mills, a number of them in B.C., and the company made its headquarters in Richmond.
In total, Paper Excellence acquired seven pulp and pulp-and-paper mills in B.C., but ended up shuttering three of them, one of which was recently sold.
The company currently has four operating pulp and paper mills in B.C.: In Crofton, Port Alberni, Port Mellon (Howe Sound) and Skookumchuck in the East Kootenays.
The four mills directly employed 1,566 workers in 2019, according to the company’s 2021 sustainability report. Another 79 were employed at the company’s Surrey distribution centre and 199 at its head office in Richmond. The company has two pulp mills in Saskatchewan and one in Nova Scotia that is currently shut down and the subject of a $450 million lawsuit against the Nova Scotia government.
In B.C., Paper Excellence bought two pulp mills in 2010 – in Mackenzie and Port Mellon (Howe Sound Pulp and Paper) – followed by Tembec’s Skookumchuck mill in 2013, and the Chetwynd Pulp mill in 2014.
The company briefly restarted the Chetwynd mill in May 2015, but shut it down again a few months later. Earlier this year, the company sold the Chetwynd property to Peak Renewables.
In 2019, the company acquired Catalyst Paper, which included pulp and paper mills in Crofton, Port Alberni and Powell River, as well as a distribution centre in Surrey.
In 2020, it indefinitely idled its Mackenzie mill, and in 2021 the company announced the indefinite closure of the former Catalyst pulp and paper mill in Powell River, which has been listed for sale.
That leaves four Paper Excellence pulp and paper mills still in operation in B.C., in Crofton, Port Alberni, Skookumchuck and Port Mellon (Howe Sound pulp mill). Paper Excellence recently announced plans to curtail paper production at the Crofton mill but maintain the pulp operations there.
The B.C. forest industry is facing a declining timber supply, which partly explains why B.C. companies have shuttered sawmills and pulp mills in the province while expanding into Eastern Canada, the U.S. and Europe.
“The opportunity does not exist in British Columbia to grow,” said David Elstone, a forestry consultant with Spar Tree Group. “The fibre availability is decreasing, and then you have other jurisdictions that may be more favourable in terms of fibre supply or timber supply, especially in the United States, where they’re welcoming to investors.”
Mason said the shuttering of the Powell River pulp mill came as no surprise.
For a couple of years now, analysts have been predicting the closure of several more sawmills in B.C., as well as some pulp mills, which rely on sawmills for sawmill waste.
“With secular decline in paper, and some of the challenges of operating on the B.C. coast, it was not a surprise to see Powell River shut,” Mason said. “All these mills are not going to make it, and Powell River was always sort of viewed as the most likely candidate to be shut first. The Chetwynd and Mackenzie ones, those were ones that were end-of-life anyhow.”
Paper Excellence’s US$3 billion acquisition of Domtar in 2021 gave it a position in the U.S. Domtar has three pulp mills in Ontario and 11 pulp, paper and packaging mills in the U.S., as well as several paper converting centres.
To date, Paper Excellence in Canada has been a pure-play pulp and paper company. The Resolute Forest Products acquisition would make it more of an integrated forestry company, with sawmills and woodlands added to its assets.
Resolute’s assets include four pulp mills, four tissue facilities, seven paper mills and 22 wood product facilities – including 17 sawmills with an annual production capacity of 2.9 billion board feet of lumber. Resolute’s woodland operations in Canada include Crown forest tenures in Ontario and Quebec.
A recent analysis by environmental groups of Paper Excellence’s corporate structure noted that the acquisition of Resolute Forest Products would mean that Paper Excellence would ultimately own companies with 20,000 workers and US$11 billion in revenue in 2021.
For comparison, B.C.-based West Fraser Timber – North America’s largest forestry company – had 10,625 employees in 2021 and US$10.5 billion in sales.
Paper Excellence’s acquisitions timeline
2007, Meadow Lake Mechanical Pulp, Saskatchewan;
2010, two pulp mills in France, and two in British Columbia, Mackenzie and Howe Sound (Port Mellon).
2011, Prince Albert pulp mill in Saskatchewan and Northern Pulp mill in Nova Scotia;
2013, Tembec’s Skookumchuck pulp mill;
2014, Chetwynd pulp mill, sold to Peak Renewables in 2022;
2019, Catalyst Paper, including pulp and paper mills in Crofton, Port Alberni and Powell River and a distribution centre in Surrey.
2021, Domtar, including three Canadian pulp mills and 11 pulp, paper and packaging mills in the U.S.;
2022, Paper Excellence offers to buy Resolute Forest Products for US$2.7 billion.