Ease Obstacles To Consolidation, Report Urges; Parliamentary Committee Suggests 23 Ways To Foster Growth And Enable Canada’s Forest Industry To Compete On Global Stage

June 04, 2008

By: David Ebner – The Globe and Mail – June 4, 2008

Vancouver – Ottawa should remove roadblocks to consolidation in the forest industry so Canadian companies can get big enough to compete on the global stage, a parliamentary committee has recommended.


The Competition Bureau, in particular, should “examine its methods for analyzing mergers and acquisitions” and “explicity” take into account the global nature of the forest products business, the House of Commons natural resources committee said in a report yesterday.

Canadian forest companies – led by West Fraser Timber Co., Canfor Corp. and AbitibiBowater Inc. – are bit players by global standards, an “astounding” situation given Canada’s vast forests and access to the U.S. market, the committee said.

The committee recommendation to make mergers easier was one of 23 ideas, which also include tax breaks, emphasis on research and development and an advertising campaign to promote the industry: “Building with Canadian Wood.”

Forest companies see the Competetion Bureau as the main roadblock to much- needed domestic consolidation in the face of numerous negative factors for the industry, including the high Canadian dollar and the weak housing market in the United States.

The perceived harsh assessments by the bureau have cast a chill on potential deals in the sector.

Executives unanimously urged change when they appeared at public hearings before the committee this year. They said Canadian companies have to get much bigger or fail in the 21st century’s global forestry market.

The industry appears poised for consolidation, with billionaire investor Jimmy Pattison seen to be positioning Canfor for acquisitions.

There are other hurdles to consolidation.

The provincial government in British Columbia likely wouldn’t welcome major mergers, analysts say, because they could reduce of the number of jobs in rural areas of the province. And Ottawa has a separate Canadian competition panel with a report due late this month, though forestry isn’t expected to be explicitly addressed.

Industry applauded the report, which adopted many of its recommendations. Avrim Lazat, president of Forest Products Association of Canada, the national lobby group, hopes the government moves quickly on the issues, saying the recommendations are straightforward and could be put in place in the next year or two.

He said consolidation is key.

“It’s hugely important,” Mr. Lazar said. “If you ask what industry has to do, it has to invest in new markets, it has to invest in new technology. These things require critical mass.”

The general fear of consolidation, from British Columbia’s provincial government to some small towns that depend on forestry to union leaders, is loss of jobs as a merged company shuts down overlapping operations. In the past, such as when Canfor bought Slocan Forest Products Inc. in 2004, the Competition Bureau forced the sale of some assets.

But with mills closing because of low prices for forest products, the long-term health of the industry is the chief problem right now, said John Allan, president of the Council of Forest Industries, a B.C. lobby group.

“With the industry facing global competitors – Russia, Europe, the U.S. – to survive in that marketplace, you have to be large-scale, global, and the Competition Bureau has been a roadblock to further consolidation,” Mr. Allan said.

By the numbers

300 plus: number of plants, such as pulp mills and saw mills, that have closed in the past five years

32,880: number of layoffs from those closings

300,000: estimated number of people directly employed by the forest sector

$36-billion: Forestry’s contribution to Canada’s gross domestic product in 2006

3 per cent: Forestry’s percentage of Canada’s GDP

400-million-plus: number of hectares of forest in Canada

An industry in crisis: After fierce lobbying from the forest industry, a parliamentary committee yesterday agreed that Canadian companies have to merge to thrive.

There are several factors hurting the forest industry, creating what it calls the worst conditions in its history:
This high Canadian dollar
The weak U.S. housing market
Lack of innovation and investment
The mountain pine beetle
Global competition