Domtar Corp.

Domtar Corp. (TSX: UFS) is a leading provider of a wide variety of fibre-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. The group is serving more than 50 countries around the world.

Why Investors Should Book Profit?

• Acquisition of Domtar Corporation by Paper Excellence, a global diversified manufacturer of pulp and specialty, printing, writing, and packaging papers, offering a decent premium to the existing shareholders.
• UFS closed the May 12, 2021 trading session at CAD 66.86, which is more or less at par with the all-cash per-share value of USD 55.5 per share offered by Paper Excellence. This is equating to CAD 67.15 after conversion at the rate of 1 USD= 1.21 CAD.

Acquisition Highlights

• Domtar Corporation shareholders to receive USD 55.5 per share in cash, representing an aggregate transaction value of approximately USD 3.0 billion.
• The purchase price represents a premium of 44% to the 30-day volume-weighted average price as of May 3, 2021.
• This agreement enables the shareholders to realize certain and immediate cash value at a significant premium for their shares
• The agreement has been unanimously approved by the Domtar Board of Directors and the transaction is expected to close in the second half of 2021, subject to Domtar shareholder approval, receipt of the required regulatory approvals.
• Domtar's activities will be continued by Paper Excellence as a separate corporate company. As a result, Domtar's executive team would remain in place, and Paper Excellence intends to keep its corporate and manufacturing sites.

Stock Recommendation

The stock made a decent rally in the past two months. The stock gained 17.1% on May 11, 2021, post the acquisition news broke out. The company entered into an agreement where Paper Excellence offered USD 55.5 per share in cash to the existing shareholders of UFS. The stock traded at CAD 66.86 at the end of the May 12, 2021 trading session. The closing price is at par with the cash price offered by Paper Excellence. Hence, we suggest the investors take out the profit from UFS stock as it is an all-cash deal, and the stock would be delisted from the exchange. Therefore, we recommend a “Sell” rating on the stock at the last closing price of CAD 66.86 on May 12, 2021. 

1-Year Price Chart (as on May 12, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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