Tacoma-based wood products company McFarland Cascade Holdings Inc. has been sold to a Canadian company.
Stella-Jones Inc. and McFarland Cascade announced the sale Friday. The deal is worth $230 million, according to published reports. The sale will close this month, the companies said in a news release.
McFarland Cascade is known for making utility poles, and it has a large operation on the Tacoma Tideflats. It employes about 215 people in Tacoma, according to the Economic Development Board of Tacoma-Pierce County.
Besides utility poles, the company also produces treated lumber for outdoor home projects, including composite decking, railings and related accessories. It owns three wood-treating facilities in addition to Tacoma; in Oregon, Mississippi and British Columbia.
“We have had a partnership with Stella-Jones in British Columbia and the sale of the businesses to them will be a natural progression of that partnership over the past decade,” Greg McFarland, co-CEO, said in the release.
Greg and Corry McFarland are third-generation family managers and co-CEOs. They will retire when the sale closes.
“It is time for Corry and me to pursue other things with our family now,” Greg McFarland said.
McFarland was founded in Idaho in 1916 and has operated from Tacoma since the 1980s. McFarland’s sales for its fiscal year ended December 31, 2011, were approximately $255 million, according to the release. Sales for fiscal 2012 are forecasted to be approximately $280 million.
UPDATE, 2:20 p.m.: Montreal-based Stella-Jones has grown rapidly in the past decade, Canada’s Financial Post reported, but buying McFarland Cascade is its biggest get yet.
Stella chief executive Brian McManus, a former auto mechanic turned investment banker, has grown the company over his nine-year tenure from annual sales of less than $100-million in 2003 to $692-million as of June 30, increasing net income every year. Adding McFarland’s projected tally this year of $280-million brings the combined company to $972-million in annual sales.
The Post quoted several analysts favorable on the sale, calling McFarland Cascade “the Holy Grail” and “a coveted investment” because of “underinvestment in power transmission and distribution grids in North America over the past 20 years.”
In other words, upgrades will have to happen as things wear out, and Stella-Jones is close to cornering the market to supply poles and other supplies.
“Stella-Jones finally gets its hands on the Holy Grail,” Laurentian Bank Securities analyst Ben Venditelli said. “The acquisition will allow Stella Jones to bolster its pole division which we believe to be the key driver of growth going forward. We should see a significant pickup in demand in the next five years that should be sustained for a decade.”
“The move in the stock today reflects that this is a coveted investment,” said Brian Pow, vice-president of research for Acumen Capital Partners in Calgary. “You don’t see people selling into it. You see people bidding up to own it. It just tells you that it is a quality industrial and in Canada, it probably doesn’t get any better.”
Stella’s main business is making railway ties and utility poles for rail freight carriers and power companies in Canada and the United States. There’s been a drastic underinvestment in power transmission and distribution grids in North America over the past 20 years and many systems need to be upgraded, Mr. Venditelli said. Analysts see that work, as well as unforeseen emergency infrastructure replacements caused by storms like Hurricane Sandy, benefiting the Montreal company.
UPDATE, 2:30 p.m.: I just spoke with Eric Vachon, Stella-Jones’s CFO. He said his company still is completing its due diligence on the planned sale, so he couldn’t be specific about plans for McFarland’s Tacoma operations.
“But I will say, McFarland is a good addition to our network, so our plan is to operate it (as is) going forward,” he said.
Vachon said Stella-Jones employs about 1,000 people in Canada and the U.S., and the McFarland acquisition will add about 300.