Tenon shareholders approve sale of US business, allowing $100M capital return

Friday 18th November 2016

Tenon shareholders have approved the sale of the wood processor's US business to New York-based buyout firm Blue Wolf Capital, allowing the company to make a $100 million capital return via a share cancellation.

The sale and capital return were approved with a more than 99.5 percent majority at the annual meeting in Auckland, the Taupo-based company said in a statement. Among minority shareholders more than 98 percent voted in favour, it said. The sale for US$110 million represents a 2016 ebitda multiple of 7.3 times, at the lower end of the range in advisory firm Grant Samuel's assessment.

Tenon, which is controlled by NZX-listed Rubicon, said the capital return of US$1.10 per existing share is expected to be completed by the end of December, with a record date of Dec. 21, subject to receipt of final High Court orders relating to the return. Blue Wolf is buying the North American operations via its BW Empire Holdings unit.

Blue Wolf describes itself as a private equity firm, and Tenon USA joins a portfolio including the Twin Rivers Paper Co, American Builders Supply, and Suwannee Lumber Co.

Tenon USA comprises three distribution and manufacturing operations: Empire, Southwest Mouldings and Ornamental Products. The company's presentation for the annual meeting said the US business had grown "far beyond" what was envisaged when it was set up in the early to mid-2000s.

While the supply of clear wood products was still critically important to both parties, it could be addressed through a product supply agreement. Tenon USA's purchases from Taupo now account for just 10 percent of what the American business buys in and makes up less than 20 percent of sales from Tenon's Taupo plant, it said.

Following the sale, Tenon's remaining business would be its Clearwood unit, which is also in under strategic review and had positive earnings, strong cash flow and limited capex requirements, the company said today.

It will return the capital, US$71.3 million, or $1.55 a share at an exchange rate of 71 US cents, by cancelling one out of every two shares held and returning $2.20 per cancelled share.

Clearwood is being reviewed by investment bank Deutsche Craig. The New Zealand business was valued at between US$63.3 million and US$74.1 million in independent adviser Grant Samuel’s report on the US transaction. Its sales rose 5 percent to USS$81 million in the year ended June 30 while earnings before interest, tax, depreciation and amortisation more than doubled to US$12 million.

Blue Wolf made its offer for Tenon's North American operations on Aug. 29. A year earlier, Tenon kicked off a strategic review of the company with Deutsche Craig to close what it described as "the perceived value gap that was evident in the share trading price at the time".

Grant Samuel expects Tenon will be liquidated above market value of $164 million if the US sale goes ahead and the Clearwood business is subsequently sold within its valuation range. In its 2016 annual report, Tenon said the sales process run by Deutsche had determined there were different potential buyers for the company's US and New Zealand businesses and that "in order to optimise value for shareholders separate review processes should be run in respect of these two asset classes".

Tenon's shares last traded at $2.60 and have declined about 7 percent this year. Rubicon, which owns 59.8 percent of Tenon, last traded at 22 cents and has fallen 23 percent so far in 2016.

BusinessDesk.co.nz

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