Louisiana-Pacific Ponies Up for Ainsworth Lumber

Always remember. When you’re buying, somebody else is selling. Do they know something that you don’t?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The recent trend towards corporate hook-ups continues.  Louisiana-Pacific (NYSE:LPX) is set to acquire B.C.’s Ainsworth Lumber (TSX:ANS) in a deal valued at about $1 billion as of last night’s close.  Ainsworth shareholders will receive some combination of cash and LPX stock once the dust settles.  This amounted to $3.76 per Ainsworth share when announced, and represented a 28% premium over yesterday’s close.

With a 54% stake, Ainsworth’s largest shareholder is Brookfield Asset Management (TSX:BAM.A, NYSE:BAM).  Brookfield has indicated it will take 52% cash and 48% LP stock in exchange for its stake.


This deal is likely to have an impact on valuations throughout Canada’s forestry space, especially for Ainsworth’s closest peer, Norbord (TSX:NBD).  Not only do both companies produce oriented strand board (OSB), a plywood substitute, but both nearly went bust during the financial crisis, and both sport Brookfield as a significant owner.

At an indicated price of $3.76 per share, LP is paying 2.1 times Ainsworth’s most recent book value per share.  At first glance, this looks like a rather hefty price tag.  However, when we compare it to the 2.8 times book that Norbord currently trades, it doesn’t look so bad.

To help justify this “discounted” multiple, it’s important to realize that Norbord is the superior company here.  They are the low-cost producer in the space and have mills located in the U.S. south that have much better exposure to the U.S. housing recovery than Ainsworth’s B.C. based operations.

Bigger picture

Let’s quickly consider the bigger picture though.  Brookfield is known to be a very shrewd investor – if they’re selling, something’s up.  Well, that something could well be that the Canadian forestry sector is currently trading at unheard of valuations.  The multiples mentioned above are much higher than long-term averages indicate these companies should trade.  Or, perhaps in Brookfield’s mind, will trade at again one day.  The following table provides more fuel to the case for over-valuation in the sector.

Company Name

Current Price-Book

10 Yr Avg Price-Book

Ainsworth Lumber






West Fraser (TSX:WFT)



Canfor (TSX:CFP)



Source:  Capital IQ

The Foolish Bottom Line

If you ever find yourself being asked to buy something from a pro like Brookfield, be highly, highly skeptical.  Brookfield swooped into Ainsworth at the credit-crisis lows and is now monetizing its investment.  The company followed a similar playbook with Norbord, which it has effectively spun-out once before, years ago.  It shouldn’t come as a surprise then to see a large block of Brookfield’s Norbord shares be made available in the very near future.  If this occurs, and you’re tempted to pick some up, remember who the seller is.

Because of their cyclical nature, investing in forestry related companies is very hard.  For a smoother ride to big gains, click here now and we’ll send you our special FREE report “3 U.S. Companies That Every Canadian Should Own”.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Fool contributor Iain Butler doesn’t own shares of any companies mentioned.  The Motley Fool doesn’t own shares in any of the companies mentioned. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Increasing yield
Dividend Stocks

TFSA Passive Income: 1 Top High-Yield TSX Dividend Stock to Buy Now

TFSA investors can now buy top Canadian dividend stocks at cheap prices and secure above-average yields for a portfolio focused…

Read more »

oil and natural gas
Energy Stocks

Better Buy: Suncor or Cenovus?

Suncor Energy Inc. (TSX:SU)(NYSE:SU) and Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) have soared in the year-over-year period.

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Passive Income: 2 Great Canadian Dividend Stocks for Retirees to Buy Now

Retirees seeking reliable passive income can now buy top TSX dividend stocks at cheap prices.

Read more »

man window buildings
Stocks for Beginners

Foolish Beginners: 1 Stock Pick to Buy Now for a $6,000 TFSA

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) stock looks cheap as shares regain their footing.

Read more »

data analyze research
Dividend Stocks

Earn Monthly Passive Income: 2 Hot Dividend Stocks in Canada to Buy Now and Hold Forever

These two hot dividend stocks could help you to earn stable monthly passive income in Canada.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Be a Landlord: Top 2 REITs (With Monthly Dividends) I’d Buy and Forget

You can be a landlord and earn monthly dividends for the rest of your life. All you need is the…

Read more »

Target. Stand out from the crowd

3 Canadian Stocks to Buy That Beat Their Earnings Expectations This Week

If you're looking for top Canadian stocks to buy, here are three impressive companies that continue to perform well in…

Read more »

A stock price graph showing declines
Energy Stocks

2 Cheap Canadian Stocks That Likely Won’t Be on Sale For Much Longer

These two Canadian stocks are close to returning to all-time highs. Don’t miss your chance to take advantage of these…

Read more »