Photographer: Norm Betts/Bloomberg

Oaktree Wins Glass Lewis Nod in Push to Block Tembec Deal

  • Glass Lewis, second-largest holder say deal undervalues Tembec
  • Rayonier Advanced agreed to buy company for about $322 million

Oaktree Capital Group LLC has won support from a prominent shareholder advisory firm in its attempt to block a proposed takeover of Canadian lumber and paper producer Tembec Inc. by Rayonier Advanced Materials Inc.

Glass Lewis & Co. urged investors in Montreal-based Tembec to vote against the deal in a report Wednesday, saying the purchase price is too low. The report noted that there’s been a significant increase in Rayonier Advanced’s shares since the deal was announced, suggesting it’s underpaying and could afford to share more of the potential value with shareholders.

“Putting these factors together, we believe there is reasonable basis for shareholders to expect more for their shares,” Glass Lewis said.

Oaktree said in a statement it agreed with the advisory firm’s conclusions, while a representative for Rayonier Advanced declined to comment.

Tembec continued to urge shareholders to support the deal in a statement Wednesday. The company said there were no alternative offers to consider and no other bidders have emerged since the deal was announced. Tembec also warned of the potential negative impact that voting against the deal would have on the company’s stock.

Oaktree, which owns 19.9 percent of Tembec, sent a letter to the boards of both companies on July 14 saying it would vote against the deal if the purchase price isn’t increased. The Los Angeles-based firm said it understands the strategic rationale for the transaction but thinks the offer price undervalues the company.

RCA Opposition

Tembec’s second-largest holder, Restructuring Capital Associates LP, also came out against the deal this week, saying it would vote against the takeover at the current offer price. RCA holds about 17.1 percent of the company’s outstanding shares.

“We are not prepared to vote for the transaction unless Rayonier responds more appropriately to the points made by Oaktree,” James Bennett, founder of RCA, said in a statement. “The strategic merit of this unique combination can improve profitability exponentially and Oaktree makes a compelling case that Rayonier can and should improve its offer.”

Glass Lewis said Oaktree and RCA have sufficient voting power to block the transaction, given the two-thirds majority required to approve it.

The advisory firm’s conclusion puts it at odds with Institutional Shareholder Services Inc., which said on July 14 that shareholders should support the deal because it offered them flexibility to benefit from the upside of the combined business.

Rayonier Advanced agreed to buy Tembec for about C$405 million ($322 million) in May to extend its geographic reach and offer more products. Rayonier said the transaction would produce about $50 million in cost savings over three years, providing a boost for the Jacksonville, Florida-based company, which has struggled amid price declines and rising competition after it was spun off from Rayonier Inc. in 2014.

Under the terms of the deal, Tembec shareholders can receive either 0.2302 of a share of Rayonier Advanced Materials or C$4.05 in cash per share of Tembec, representing a 37 percent premium to its closing price prior to the deal announcement.

Tembec shareholders are set to vote on the transaction July 27.

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