Deltic Timber jumps after agreeing to be bought by larger peer Potlatch

Shares of Deltic Timber Corporation (DEL) jumped in early trading after the company agreed to be acquired by larger peer Potlatch Corporation (PCH). The combined company is expected to have a pro-forma market cap of about $3.3B and a total enterprise value of over $4B. ALL-STOCK TRANSACTION: Potlatch confirmed this morning that it has agreed to buy Deltic Timber in an all-stock transaction, creating a company with a total enterprise value of $4B. Under the terms of the deal, Deltic shareholders will receive 1.8 Potlatch shares for each Deltic share they own. When the deal closes, which is expected to occur in the first half of 2018, Potlatch shareholders will own 65% of the combined company. The combined company will be called Potlatch Deltic Corporation and trade on the Nasdaq Stock Market under the ticker "PCH." Deltic Chief Executive Officer John Enlow will be the combined company's vice chairman, while Potlatch Chief Executive Officer Mike Covey would continue in the role. Deltic will convert to a real estate investment trust structure, and will pay out accumulated profits of $250M to investors through a dividend consisting of 80% stock and 20% cash by the end of 2018. The companies expect to realize about $50M of after-tax cash synergies and operational efficiencies. The combined company will have a diverse timberland portfolio of approximately 2M acres, with approximately 1.1M acres in the U.S. South, 600,000 acres in Idaho, and 150,000 acres in Minnesota. In addition, the company will operate eight wood products manufacturing facilities, including six lumber manufacturing facilities, one medium density fiberboard facility and one industrial plywood mill. The combined company will have lumber capacity of 1.2B board feet in total. Deltic and Potlatch compete with Weyerhaeuser (WY). WHAT'S NOTABLE: In August, Deltic said it was assessing a "comprehensive range" of strategic alternatives, both internal and external. The company said at the time that it had been approached "by a number of industry participants" regarding interest in a potential deal. Deltic said it had met with Southeastern Asset Management, which held a 15% stake in Deltic as of August 25, "on a number of occasions" to discuss the ideas. In August, SAM said "it has become clear after many attempts that Deltic is not serious about engaging with Southeastern at a substantive level," and that it may nominate directors at Deltic's next annual meeting. OTHER POTLATCH NEWS: Potlatch this morning also reported quarterly results, with earnings per share excluding items of 94c beating analysts' consensus estimates of 90c. Revenue of $190.44M was essentially in line with analysts' $190.45M consensus. Potlatch also raised its quarterly dividend 7% to 40c per share from 37.5c, payable December 29 to investors of record on December 8. PRICE ACTION: In early trading, Deltic Timber is up over 6% to $94.83, while Potlatch is up about 2% to $53.90.