Great Pacific's take-private offer a win for shareholders

We assess the probability of the deal going through at 75%

Charles Gross 12 August, 2019 | 12:32PM

On Aug. 11, Great Pacific Capital Corporation made an offer to take Canfor Corp (CFP) private at a share price of $16, just slightly above our prior fair value estimate of $15 per share. Given that the takeout offer stands slightly above our stand-alone fair value estimate, we believe that Canfor's board should accept the offer and allow the deal to go through. We assess the probability of the deal going through at 75%, due to both the substantial premium offered relative to the market price and the 51% ownership stake that Great Pacific already has in Canfor. Accordingly, our fair value estimate rises to $15.75, based on the 75% likelihood that the deal goes through and a 25% change that Canfor remains a standalone business.

We are also reducing our uncertainty on Canfor from high to low, based on our high assessed probability that the deal will go through. Our bull-case valuation now reflects a 75/25 split of $16 and $21, while our bear-case valuation now reflects a 75/25 split of $16 and $10.

Canfor has announced the formation of a "special committee" of independent directors who will consult a financial advisor regarding the fairness of the proposed deal. The offer price is just above the $15.79 consensus target price, and 60%-80% above recently prevailing market prices. We would be surprised if the offer price was deemed unfair. Because the purchase constitutes a business combination, roughly half of the independent shareholders will need to approve the combination in order to continue. As noted above, we think it's likely that shareholders will accept the offer.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canfor Corp15.96 CAD0.13

About Author

Charles Gross  Morningstar Equity Analyst