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Nov 2004 - The Logging and Sawmilling Journal

SPOTLIGHT

Year of Takeovers

It’s been a year of company takeovers in the BC Interior with West Fraser’s $1.2 billion purchase of Weldwood of Canada, and a takeover of Riverside Forest Products by Tolko Industries now apparently complete. The fallout of all this for logging contractors remains to be seen.

By Jim Stirling

West Fraser Timber’s takeover of Weldwood of Canada followed Canfor’s takeover of Slocan Forest Products. The West Fraser deal was followed, in the fall, by Tolko Industries’ and Interfor’s bidding war for Riverside Forest Products, with Tolko eventually winning control of Riverside.

The year 2004 represents a landmark for Williams Lake, a pivotal year in the evolution of the city’s forest industry. As the city enjoys a year-long birthday party commemorating 75 years of incorporation, the latest wave of licensee consolidation has swept away familiar players and helped to transform the industry’s complexion. Logging and sawmilling are inextricably woven into the pioneer development and maturation of Williams Lake, an attractive city in the central Cariboo region of the British Columbia Interior. The first sawmill of any consequence was built there in 1863 by William Pinchbeck. It was part of a farm complex designed to service the hordes of gold seekers streaming into the Barkerville area to the northeast.

West Fraser Timber’s acquisition of Weldwood of Canada gives it estimated annual lumber production of over 3.6 billion board feet. 

Apart from selling food and supplies, the enterprising Mr. Pinchbeck constructed a distillery to cater to travellers’ other needs. Pinchbeck’s grave is on a grassy knoll offering an expansive view down Williams Lake. Immediately to the west of the gravesite, across the meandering Williams Lake River, is the Riverside Forest Products sawmill, soon to be part of Tolko Industries, following a takeover of Riverside by Tolko. Riverside now has an east and west division. The west division was better known until earlier this year as Lignum Ltd, an independent, family-owned company with Cariboo roots dating to the late 1940s. Back then and into the decades that followed, there were several small sawmilling operations scattered through the mixed forests of the region. The more efficient ones—and those that could arrange financing—gobbled up the rest. Lignum was a survivor of that era along with other predominantly family-run operations in Williams Lake like Jacobson Brothers Forest Products, Pinette and Therrien Mills and Merrill & Wagner Ltd.

With the acquisition of Riverside Forest Products’ sawmill operations, Tolko Industries becomes an even larger lumber player in BC, and Canada, with operations in many locations throughout the interior of the province.

Recent amendments to Bill 13, the Timber Harvest Contract and Subcontractor Regulation, are designed in part to help level the playing field. The changes include an obligation for licensees to present detailed rate proposals to logging contractors who have replaceable contracts. The dispute resolution process has also been revamped to make it shorter and less costly to pursue. But reforms to forest policy introduced by BC’s Liberal government give large forest companies much more leeway in when and where they access timber. For example, a licensee can choose not to harvest timber under its own licences and buy wood on the open market if it sees advantages in so doing. The province’s commitment to a market-based pricing system for Crown timber might also be complicated by the consolidation factor.

Fewer companies with more timber harvesting rights means less competition in establishing regional timber prices. The West Fraser-Weldwood deal has still to be officially approved by regulators in Canada and the US (Weldwood is owned by the American giant International Paper). The federal Competition Bureau will also take a look at the proposed transaction. The bureau surprised some industry watchers when it determined Canfor must sell its Fort St James sawmill operation and the associated timber harvesting rights for the deal with Slocan to go ahead. Canfor must continue operating the mill and planer complex until a sale is brokered. The Competition Bureau ordered the sale because it felt the merger could result in a significant reduction in competition in the Prince George area. Canfor operates six sawmills within a 160-kilometre radius of Prince George and Slocan had an additional two plants.

Now the West Fraser/Weldwood purchase will be under the bureau’s microscope. It will decide if the deal permits enough competition in timber and chips on a region-by-region basis where the two companies have wood processing plants and timber cutting privileges. Hank Ketchum, West Fraser’s chairman, president and CEO, was quoted as believing the Competition Bureau review wouldn’t become an issue. “But we’re just going to have to see how it plays out,” he says. Indeed—along with many other parties with a vested interest in BC’s Interior forest industry. Two other long time players in the Cariboo forest industry are West Fraser Timber Co, and Weldwood of Canada. In July, a second blockbuster deal impacting Williams Lake and the rest of the Cariboo came with the announcement of West Fraser’s acquisition of Weldwood. The deal is said to be worth $1.26 billion. It follows Canfor’s $630 million share purchase of Slocan Forest Products. West Fraser and Canfor now control more than half the timber harvesting rights in north-central BC, and considerably more in some areas of the Cariboo. But more change was to come.

This was followed by the $377 million takeover of Riverside Forest Products by Tolko Industries, both of them based in the BC Interior. So while the 2004 Forest Capital of BC continues its birthday bashes and special events, many in the forest community are looking with some wariness to the Laketown’s 76th year and beyond. At the heart of their uncertainties is what effect the increased corporate concentration will have on regional log markets and on log harvesting and hauling contractors. Members of the latter group are reluctant at this point to debate the issue in the media. Some are worried about possible repercussions if they do. Last year, regional trucking and logging contractors were told to accept rate cuts by a group of licensees seeking ways to reduce their costs.

Licensee costs included those associated with the US softwood dispute and the higher valued Canadian dollar. Loggers and truckers unhappy with the rates offered don’t have the realistic option of taking their services elsewhere because there are fewer and fewer licensees. Meanwhile, the costs of operating harvesting equipment and logging trucks continue to rise. The equipment itself, insurance, fuel, supplies and components are all becoming more expensive each year while the number of working days in a year is generally declining. Some truckers have reportedly skimped on servicing and worked even longer hours in efforts to compensate for the rate cuts. The safety implications are scary. Disgruntled truckers have formed a new organization—the Northern Truckers Association sponsored by IWA Local 1-424—to present a unified voice and add some clout to the rate establishment process. The irony is that there is a classic symbiosis at play here. Independent logging contractors and log haulers have proven themselves to be by far the most efficient at their jobs. They and the licensees need each other. Recognition of their mutual reliance would go far to produce a stability from which both parties would benefit.

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