Resolute Forest Seeking to Buy or Build Lumber Mills in U.S.

Aug 06, 2014 4:51 pm ET

(Updates with closing share price in sixth paragraph.)

Aug. 6 (Bloomberg) -- Resolute Forest Products Inc., the world’s largest newsprint maker, is seeking to reduce its reliance on the low-grade paper by expanding its Canadian solid wood-products business into the U.S.

Already North America’s fifth-largest lumber producer, Resolute has been assessing potential opportunities to buy or construct U.S. lumber mills, Chief Executive Officer Richard Garneau said last week in a telephone interview.

“The likelihood for us doing acquisitions or building greenfield lumber mills is greatest in the U.S. South and the Southeast,” where Resolute has pulp and paper mills, he said. “We always look for synergies.”

Resolute, based in Montreal, is among paper makers hurt by falling demand for newsprint as newspaper circulation declines and use of electronic communications climb.

Newsprint generated a third of Resolute’s revenue last year, down from 41 percent in 2007, according to data compiled by Bloomberg. Lumber and other solid-wood products accounted for 13 percent of sales last year, up from 8.2 percent in 2007.

Resolute rose 4.3 percent to C$18.42 at the close in Toronto, the highest since April 30. The shares have increased 7.6 percent this year.

Resolute’s strategy is to use cash generated by the newsprint sales to invest in businesses like lumber and pulp that have growth potential, Seth Kursman, a Resolute spokesman, said yesterday by phone. The company aims to keep generating cash from newsprint by being a low-cost producer even as demand contracts.

U.S. Focus

Other Canadian wood producers are expanding their U.S. presence. Vancouver-based West Fraser Timber Co., the largest in North America by lumber capacity, acquired two sawmills in Arkansas this year to add to lumber mills in eight other U.S. states. Canfor Corp., also based in Vancouver, said Aug. 1 it agreed to buy two sawmills in Georgia, increasing its U.S. lumber assets.

Resolute, 31 percent owned by Prem Watsa’s Fairfax Financial Holdings Ltd., was previously known as AbitibiBowater Inc. The company filed for bankruptcy protection in 2009 after being unable to pay $8.8 billion in debt or negotiate a restructuring amid a drop in newsprint demand.

AbitibiBowater was formed in the October 2007 merger of Montreal-based Abitibi-Consolidated and Greenville, South Carolina-based Bowater Inc. in a transaction valued at about $4.8 billion.