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Shares of Domtar Corporation UFS surged 16.88% following its announcement that it has entered into a strategic business combination with Canada-based Paper Excellence. Per the deal, Paper Excellence will acquire all of the issued and outstanding shares of Domtar common stock for $55.50 per share, in cash. The all-cash transaction represents an enterprise value of approximately $3.0 billion.
Paper Excellence is a diversified manufacturer of pulp and specialty, printing and writing, and packaging papers. It has seven manufacturing facilities in Canada, and produces more than 3 million tons of paper annually and generates around $2.6 million in annual sales.
Earlier on May 4, Domtar had confirmed speculations that it was in discussions with Paper Excellence for a possible business combination or acquisition which led to a 19% spike in its share price in a day. The purchase price of $55.50 per share represents a premium of around 37% to Domtar’s closing share price of $40.52 on May 3, 2021 — the last trading day prior to the abovementioned statement. It also marks a 44% premium to the 30-day volume-weighted average price as of May 3, 2021.
The transaction is expected to close in the second half of 2021, subject to Domtar’s shareholder approval, receipt of the required regulatory approvals and other customary closing conditions. Paper Excellence intends to continue the operations of Domtar as a stand-alone business entity. Domtar will continue to be led by its management team and Paper Excellence plans to retain its corporate and production locations. This buyout marks Paper Excellence’s foray into the American market and will gain on Domtar’s expansive global footprint.
Domtar recently reported first-quarter 2021 results. The company reported adjusted earnings of 9 cents per share against an adjusted loss per share of 27 cents in the prior-year quarter. However, the bottom line missed the Zacks Consensus Estimate of 51 cents due to challenges related to the COVID-19 pandemic and severe winter weather.
Paper demand has been impacted by the coronavirus pandemic. However, Domtar believes this demand will rebound in the current year as people return to schools and offices. The pulp market is likely to gradually improve on steady demand growth and supply constraint. However, seasonally higher maintenance outage costs in the pulp and paper business might weigh on the second-quarter performance.
On Mar 1, the company completed the sale of its Personal Care division to American Industrial Partners. The divestiture aligns with Domtar’s primary focus on building an industry-leading Paper, Pulp and Packaging business.
The stock has soared 178.7% in the past year, compared with the industry’s rally of 96.7%.
Zacks Rank & Other Key Picks
Domtar currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the basic materials space include ArcelorMittal MT, Celanese Corp. CE and Dow Inc. DOW. All of these stocks flaunt a Zacks Rank #1 currently.
ArcelorMittal has a projected earnings growth rate of 984.7% for the current fiscal year. The company’s shares have soared nearly 320% in the past year.
Celanese has an expected earnings growth rate of 68.3% for the current fiscal year. The company’s shares have rallied around 128% over the past year.
Dow has a projected earnings growth rate of 261.6% for the current fiscal year. The company’s shares have gained roughly 112% in a year’s time.
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