Tembec Provides Transaction Update
MONTREAL, Quebec, July 19, 2017 — Tembec Inc. (TSX: TMB) ("Tembec" or the "Company") today provided an update in response to the recent public broadcast solicitation by Oaktree Capital Management, L.P. ("Oaktree") in connection with the proposed acquisition (the "Arrangement" or the "Transaction") by Rayonier Advanced Materials Inc. ("Rayonier AM") of all of the issued and outstanding common shares of Tembec (the "Tembec Shares").
It is important that the shareholders of Tembec (the "Tembec Shareholders") be well informed when considering their voting decision. Consequently, the Company reiterates and highlights the following important considerations for Tembec Shareholders:
- a comprehensive and rigorous sale process was conducted for the sale of the whole or parts of Tembec, during which many potential interested parties were provided confidential information, including current and expected financial results based on price and volume expectation across all of Tembec's businesses;
- no third party has made or communicated any intention to make an alternative acquisition proposal since the announcement of the Transaction;
- the potential negative impact upon Tembec Shareholders if the Arrangement is not approved, including potential stock price decline; and
- the reasons for the unanimous recommendation of the board of directors of Tembec (the "Board") to vote FOR the Arrangement and its continued support of the Transaction.
On July 17, 2017, Oaktree issued a press release expressing its disapproval of the Transaction. Tembec wishes to correct certain of Oaktree's assertions and allegations:
- The Board Conducted a Comprehensive and Rigorous Sale Process. As clearly set out in the "Background to the Arrangement" section of Tembec's management information circular dated June 13, 2017 (the "Circular"), the Arrangement arose out of a comprehensive and rigorous sale process conducted by Tembec, assisted by experienced financial and legal advisors. As early as 2012, the Board and special committee of the Board began reviewing a number of strategic initiatives for the purpose of maximizing value for Tembec Shareholders, including, among others, the continuation of Tembec's existing stand-alone business plan and a strategic repositioning of Tembec, cost reduction plans, potential asset combinations of Tembec's forest products, newsprint and/or specialty pulp businesses with other industry players, the possible divestiture of certain of Tembec's core and non-core business segments and several strategies to refinance Tembec's maturing debt obligations and provide additional necessary liquidity. This multi-year process led to discussions with multiple third parties, for the sale of the whole or parts of Tembec, and four non-binding expressions of interest, as described in the Circular. Following the outcome of this comprehensive and rigorous sale process, on May 24, 2017, the Board concluded that the Arrangement represented the best alternative currently available to Tembec Shareholders.
- Projections Taking into Account Calendar 2017 Specialty Cellulose Price and Volume Increases Provided to Potential Bidders. The sale process described above continued until May 2017, when the Transaction was announced. All material information, including management forecasts taking into account the calendar 2017 specialty cellulose price and volume increases, was provided to potential bidders in the context of negotiations with respect to a strategic review process. As a result, this information was taken into consideration by all potential bidders in the course of their due diligence review of the Company, including Rayonier AM.
No Alternative Acquisition Proposal Received
The nature and duration of the sale process has afforded interested parties sufficient time to participate, and following the announcement of the arrangement agreement between Tembec and Rayonier AM dated May 24, 2017 (the "Arrangement Agreement"), to submit or propose a Company Acquisition Proposal (as defined in the Arrangement Agreement). Rayonier AM did not demand or benefit from an exclusivity arrangement at any point throughout the sale process, including during negotiations leading up to the Arrangement Agreement. Therefore, at any point before the entering into of the Arrangement Agreement, any interested bidder was entitled to make an offer to the Company without triggering a termination fee. Moreover, the Arrangement Agreement does not preclude any other party from submitting or proposing a Company Acquisition Proposal. Despite this, since the announcement of the entering into of the Arrangement Agreement on May 24, 2017, no third party has made, or communicated any intention to make a proposal to the Company.
The termination fee in the Arrangement provides the Board with the flexibility to accept a superior proposal or to change or withdraw its recommendation. The fee of C$20,000,000, which represents approximately 1.8% of the total transaction value, is appropriate and reasonable and does not, in our view, provide an impediment to a superior offer.
Potential Impact of the Arrangement Not Being Approved by Tembec Shareholders
If the Arrangement is not approved by Tembec Shareholders, either Tembec or Rayonier AM will be entitled to terminate the Arrangement Agreement at its option.
If the Arrangement is not completed, the market price of the Tembec Shares may decline to the extent that the current market price reflects a market assumption that the Arrangement will be completed. If the Arrangement is not approved by Tembec Shareholders, Tembec will continue to operate on a stand-alone basis, as it did prior to the sale process described above and in the Circular. We refer Tembec Shareholders to the risk factors relating to the business of Tembec set out in the Company's annual information form dated December 16, 2016.
Should the Board decide to commence another sale process, there can be no assurance that it will be able to find a party willing to pay a consideration for the Tembec Shares that is equivalent to, or more attractive than, the consideration payable pursuant to the Arrangement, or that it will be able to find an interested party at all.
Recommendation to Vote FOR the Arrangement
The Board has unanimously determined, and continues to believe that, following a comprehensive and rigorous sale process and further to its consideration of a number of factors and strategic alternatives available to the Company (as clearly described in the Circular), that the Arrangement is in the best interests of Tembec and its shareholders. Based on the following factors, among others described in the Circular, the Board recommends that Tembec Shareholders vote FOR the Arrangement:
- Premium to Tembec Shareholders. As of July 18, 2017, the Arrangement values the Tembec Shares at C$4.16 based on Rayonier AM common stock ("Rayonier AM Shares") closing share price of US$15.01 and currency exchange rate of 0.7919. This represents a premium of 41% over the closing price of the Tembec Shares of C$2.95 on May 24, 2017 and 38% over the 52-week high closing price of the Tembec Shares as of May 24, 2017.
- Benefits of Rayonier AM and Tembec Combination. The Board believes that the combination with Rayonier AM represents an excellent strategic fit through increased financial strength and flexibility, a broader array of product offerings, an expanded geographic footprint, opportunities to achieve manufacturing and distribution efficiencies and increased manufacturing scale. The Combined Company (as defined in the Circular) will also benefit from lower debt levels and a solid capital structure, enabling it to make high-return investments to support continued growth. Tembec Shareholders who receive Rayonier AM Shares pursuant to the Arrangement will have the opportunity to participate in these benefits and any future increase in value of the Combined Company.
- Fairness Opinions. The fairness opinions delivered by each of Scotia Capital Inc. and National Bank Financial Inc., state that, as at May 24, 2017, and subject to the assumptions, limitations, qualifications and other matters contained therein, the consideration to be received by the Tembec Shareholders under the Arrangement is fair, from a financial point of view, to Tembec Shareholders.
Tembec Shareholders are reminded that votes must be received by Tembec's transfer agent, Computershare Trust Company of Canada, no later than 5:00 p.m. (Eastern Time) on July 25, 2017. We refer Tembec Shareholders to the "General Information Concerning the Meeting and Voting" section in the Circular.
The Circular contains important information about the Arrangement and the special meeting of Tembec Shareholders to be held on July 27, 2017 at 10:00 a.m. (Eastern Time) and is available under Tembec’s profile on SEDAR at www.sedar.com. In particular, Tembec Shareholders should consider in more detail the following sections of the Circular: "Background to the Arrangement", "Recommendation of the Board", "Reasons for the Recommendation" and "Risk Factors".
Tembec Shareholders who require assistance in voting their proxies may direct their inquiries to Tembec’s proxy solicitation agent, Shorecrest Group, by telephone at 1-888-637-5789 (toll-free), 1-647-931-7454 (collect calls outside of North America) or by e-mail at firstname.lastname@example.org.
Tembec is a manufacturer of forest products – lumber, paper, and high purity cellulose – and a global leader in sustainable forest management practices. Principal operations are in Canada and France. Tembec has approximately 3,000 employees and annual sales of approximately C$1.5 billion. Tembec is listed on the Toronto Stock Exchange (TMB). More information is available at www.tembec.com.
This document contains statements that are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to: the timing of the closing of the Transaction; whether the Transaction will be consummated at all and the ability to obtain required regulatory approvals and satisfy the other conditions to closing the Transaction; the expected benefits of the Transaction and whether such benefits will be achieved on a timely basis or at all; the ability of Tembec and Rayonier AM to successfully integrate their respective businesses; prolonged weakness in general economic conditions; unfavorable weather conditions or natural disasters; reliance on government permits or approvals; risks related to federal, state, local and foreign government laws, rules and regulations; risks related to the reliance on information technology; manufacturing issues that may arise; adverse consequences of current or future legal claims; ability to hire and retain a sufficient seasonal workforce; risks related to workforce, including increased labor costs; loss of key personnel; fluctuations in foreign currency exchange rates; impairments or write downs of assets; changes in accounting estimates and judgments, accounting principles, policies or guidelines; material adverse changes in financial condition; and other risks detailed in Tembec’s filings with the Canadian Securities Administrators, including the “Risk Factors” section of Tembec’s annual information form for the fiscal year ended September 24, 2016. All forward-looking statements attributable to Tembec or any persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements in this document are made as of the date hereof and Tembec does not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by law.
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Michel J. Dumas
Executive Vice President, Finance and CFO
Tel: 819 627-4268
Vice President, Human Resources and Corporate Affairs
Tel.: 416 775-2819