(Reuters) - Canadian wood products maker West Fraser Timber Co (TO:WFT) said on Thursday it would buy smaller rival Norbord Inc (TO:OSB) for about C$4 billion ($3.05 billion) in stock, strengthening its presence in North America and expanding into Europe.
The deal comes as lumber manufacturers recover from the disruption caused by the COVID-19 pandemic, while record low mortgage rates and a shift to work from home encourage people to buy homes, undertake renovation and do-it-yourself projects.
Norbord is the world's largest producer of oriented-strand boards, used for flooring, wall and roof sheathing, and has 17 plants located in the United States, Europe and Canada.
West Fraser, which in April withdrew its 2020 output forecast citing changes in production schedules due to the health crisis, said it planned to retain all Norbord mills.
Norbord shareholders will receive 0.675 of a West Fraser share for each held, or C$49.35 per share based on West Fraser's closing price on Nov. 18. That represents a premium of 13.6% to Norbord stock's last close.
Norbord's Toronto- and U.S.-listed shares (N:OSB) rose about 8%, while West Fraser's stock fell 4.9% in morning trading.
The deal is expected to help save about C$80 million annually within two years after close, likely in the first quarter of 2021.
West Fraser will also apply to list its shares on the New York Stock Exchange, and its shareholders will own about 56% of the combined company on deal closing.
Brookfield Asset Management Inc (TO:BAMa), the top shareholder in Norbord with about 43% of the company's shares, has agreed to vote in favor of the deal.
Some affiliates of members of the Ketcham family, which founded West Fraser, have also agreed to vote about 13 million shares, or 19% of outstanding shares, in favor of the transaction.