Woodridge Timber Case

We have prepared this report in order to assess and make recommendations in regards to the various available financing options presented to Woodbridge Timber Products Inc. The financing options available are 1) a new common share issue; 2) the sale of convertible debentures; and 3) an issue of 5-year medium-term notes. The financing will be used to repay the $60 million shareholder loan given to Woodbridge by Mitsubishi. We were asked to help in the appropriate recommendations that Mr. Enright needs to present.

Background

We want to first make note of some contextual points that we feel are relevant to our analysis and ultimately the recommendations we reach. Since the founding of the company in 1976, where Mr. Caloway and Mr. Patterson owned the majority of equity, Woodbridge management has slowly eroded its control in the company through common share financing used to expand the business operations. Currently, the original owner Mr. Patterson has seen his control drop to 18.7% of common equity. Woodbridge is a mid-sized forestry company with facilities mostly confined to the interior region of B.C who produces lumber, plywood, oriented strand board, and wood chips. Due to the Canadian softwood and lumber agreement with the U.S, Canadian firms have certain quotas for U.S exports that other countries do not have. This has put pressure on Canadian companies to find other means of sales growth. In your case, Mitsubishi has become a strong partner in helping you grow your Japanese and Asian sales to 26%. In an effort to ensure stability against the U.S quota, Canadian tenure restrictions, and B.C stumpage rates, you decided to acquire TSA for the valuable production security. With the help of a guarantee from Mitsubishi, you were able to finance the acquisition with a 90 million loan from the bank and a $50 million sale of equity to Mitsubishi that brought their share to 21.65%. In 1998, lumber prices fell by 19% due to a global crisis that led to an...