Shares of Louisiana-Pacific are up almost 10 percent in Monday trading after Canadian rivals Norbord and Ainsworth — the Nashville company looked to buy the latter a year ago — agreed to merge. At about 12:20 p.m., LP (Ticker: LPX) was up 9.3 percent on volume that is on track to triple its daily average. LP CEO Curt Stevens 15 months ago signed a deal to buy Ainsworth but pressure from U.S. and Canadian regulators led to that deal blowing up in May.
Worth noting is the price tag of Norbord's agreement, which suggests investors don't view the building materials market to be as healthy as it was a year ago: Whereas LP was prepared to pay $1.1 billion for Ainsworth, Norbord will cut a check for almost $670 million.
The leaders of Louisiana-Pacific and Ainsworth Lumber have agreed to extend to June 2 today's deadline to obtain regulatory approval of their planned $1.1 billion combination. The companies say their extension is the result of "continued discussions" with the Canadian Competition Bureau and the Antitrust Division of the U.S. Department of Justice. Either company can add another 45 days to the deal's timeline if needed.
Shares of LP (Ticker: LPX) are down about 1 percent this afternoon to $15.25. Investors appear to be expecting not-so-good news about the Ainsworth acquisition and have pushed the stock down nearly 20 percent since the beginning of March.
Louisiana-Pacific and its acquisition target Ainsworth Lumber have been asked by federal officials for more information about their planned deal. The Department of Justice is looking into the antitrust aspects of the $1.1 billion transaction, which is expected to close early next year.
Bill McConnell at TheStreet.com writes about the apparent greater likelihood that Louisiana-Pacific will be asked by the Federal Trade Commission to divest some of the manufacturing capacity it will have after it buys Canadian rival Ainsworth. It will likely come down to how the FTC's staff looks at the proposed combination's effects on Western Canadian production.
A key factor in the antitrust review is how broadly the regulators view the affected market. A broader view that geographically includes all of North America and includes both plywood and oriented strandboard (OSB) would make an extended review unlikely. If the DOJ limits the market to a smaller geographic area like the U.S. Pacific Northwest and considers the merger's impact only on OSB, then the likelihood of a long review and divestitures rises substantially.
SEE ALSO: LP buying Canadian competitor for $1.1B
Moody's Investors Service has placed under review its opinion on the debt of Louisiana-Pacific following the news that the Nashville-based company plans to buy Ainsworth Lumber, the industry's No. 5 player, for more than $1 billion. As part of their review, Moody's analysts also will look into one of the things that has their equity brethren excited about the deal — how the planned consolidation might improve the prospects for rational supply growth and pricing.
You can almost hear the applause from investors and analysts... Let's see, you're buying a company that has higher margins than you, opens up global opportunities and lets you better supply the market while helping to keep a lid on capacity additions? Here's our stamp of approval.
The day after news of Louisiana-Pacific's deal to pay $1.1 billion for Canada's Ainsworth Lumber , shares of the downtown-based company (Ticker: LPX) are up more than 11 percent in afternoon trading to $17. Volume has been very heavy, with more than 14 million shares changing hands versus the daily average of 2.6 million.
Several analysts have contributed to the optimism. At D.A. Davidson, Steven Chercover raised his rating to 'buy' from 'neutral' and sees the stock climbing to $20, where it last traded in May. Mark Wilde at Deutsche has raised his target to $21 from $20 — and his rating to 'buy' from 'hold' — and says he sees a few more consolidations coming in an industry that ha regularly struggled with controlling its supply.