Shares in Catalyst Paper jumped more than 700 per cent this week after the company announced that Indian papermaker Kejriwal Group International is interested in acquiring it.
The Mumbai, India-based company has committed to paying $6 a share for Catalyst shares not held by the company’s four largest stakeholders, prompting the surge in price for Catalyst.
In a statement, Catalyst said it has received an expression of intent outlining the terms of the potential acquisition from Kejriwal Group International and the four principal stakeholders in Catalyst — bondholders who also own 79 per cent of shares in the B.C. company.
The announcement boosted Catalyst stock from its May 20 close of 59 cents a share to $5 on Tuesday, a gain of $4.41or 748 per cent. Shares closed at $4.26 on Friday, marking a 622 per cent spike over the last five days.
The deal involves KGI acquiring the shares of Catalyst held by the four principal stakeholders and exchanging the debt instruments they hold in the B.C. pulp and paper company for a new-term loan. They also plan on exchanging payment-in-kind notes for a $260.5 million US term loan.
KGI further committed to a $25 million US equity investment in the company and an additional $35 million US in a newly-formed guarantor of the new term loans.
The four stakeholders are Mudrick Capital Management LP, Cyrus Capital Partners LP, Oaktree Capital Management LP, and Stonehill Management LLC.
KGI is part of the Kejriwal Group, headquartered in Mumbai, India.
Catalyst issued a statement on the proposed transaction Tuesday stating that the company’s board of directors is encouraged by Kejriwal’s tentative proposal.
KGI’s proposal could provide Catalyst with a significant amount of capital which further enhances and accelerates the company’s planned growth initiatives, the statement said.
No timeline is given for the proposal and Catalyst included a caution to investors in its statement. “There can be no assurance that any definitive proposal will be made, that any agreement will be executed and on what terms, or that this or any other transaction will be approved or consummated,” Catalyst said.
Catalyst issued the statement as a result of receiving a copy of an acquisition letter that the stakeholders filed with the U.S. Securities and Exchange Commission outlining the terms of a potential acquisition of Catalyst. Such letters are typically a precursor to a transaction. However, they are non-binding.
Catalyst owns pulp and paper mills at Crofton, Port Alberni and Powell River as well as two mills in the U.S. at Biron, Wisconsin, and Rumford, Maine. It purchased the U.S. mills for $74 million in January 2015.
Catalyst, which reported sales of $2 billion in 2015, has been struggling to adapt to the shift to electronic media by going up the value chain in paper products. The company was rescued from bankruptcy in 2012 through a restructuring with its bondholders at that time and the B.C. towns where its mills operate reduced the municipal tax burden on the company to help bring its costs down.
Catalyst reported a net loss of $49 million in 2015, a year in which president Joe Nemeth said demand for all paper grades declined.
Catalyst employs 2,800 people at its B.C. and U.S. operations.
