Domtar Corp. (UFS) shares rose about 16.9% at the close of trade on May 11 as the company agreed to be acquired by Paper Excellence for $3 billion, or about $55.50 in cash per share.
This represents a 44% premium to Domtar’s 30-day volume-weighted average price as of May 3. The transaction is expected to close in the second half of 2021.
Domtar provides fiber-based products such as communication, specialty, and packaging papers as well as absorbent hygiene products. Paper Excellence, which is headquartered in British Columbia, manufactures pulp and specialty printing, writing, and packaging papers.
The transaction will expand Domtar’s financial assets, customer base, and product portfolio, while giving Paper Excellence the opportunity to enter the U.S. market and accelerate its growth strategy.
Domtar President and CEO John D. Williams said, “This agreement enables our shareholders to realize certain and immediate cash value at a significant premium for their shares. This transaction validates our long-term strategic plan for our leading paper and pulp businesses, and for our continued expansion into packaging.” (See Domtar stock analysis on TipRanks)
Paper Excellence Global Chief Financial Officer Joe Ragan commented, “We have long admired Domtar’s expansive global footprint and believe that it will be a valuable addition to Paper Excellence.”
On May 7, BMO Capital analyst Mark Wilde reiterated a Buy rating on the stock and raised the price target to $53 from $40.
Wilde commented that Domtar had a “tough” Q1, owing to the impact from “force majeure at 650,000 ton Ashdown pulp mill.”
Based on 4 Buys and 5 Holds, consensus on the Street is that Domtar is a Moderate Buy. The average analyst price target of $44.54 implies 19.6% potential downside. Shares have surged about 118.8% over the past year.
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