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  Canwel sates Sodisco's urge to merge

BENJ GALLANDER and BEN STADELMANN

Friday, November 12, 2004

When we wrote about Sodisco-Howden last June — with the stock kicking around at $2.70 — there was some bellyaching on our part about the apparent lack of interest in the company despite the prominent "For Sale" sticker that had been pasted on it for many months.

As in other markets, such as real estate, the longer an enterprise remains on the block, the lower the probability of fetching a good price — or finding a buyer at all. As expected, investors gave the shares the cold shoulder, and they slumped as low as $2.20 in August.

But never say never. CanWel Building Materials has suddenly emerged as a buyer, winning over Sodisco's board with an offer of $3.25 a share. Though we always hope a bidding war will erupt when one of our stocks gets taken over, such a scenario is hardly likely in this case.

Already, 43 percent of the shares are locked up; a tender of 66.6 percent is necessary to complete the transaction. There is a palpable sense of relief that Sodisco won't be a lonely stag much longer, with the deal on the fast track and expected to be completed before the end of the year.

It looks like a good fit. CanWel has only been public for a short while, having raised $43.5 million in an IPO last May at $8.50 a share.

Buying Sodisco is the latest step in an interesting and winding path for the suitor. The distributor of building materials started out as a joint venture between forest giant Canfor and Wellwood. In 1999, Canfor sold its interest in the ailing firm to Futura, run by the value investor Amar Doman, nephew to the famous — or infamous, depending on your point of view — west coast titan Herb Doman.

Under the new ownership CanWel was whipped into shape, with profits replacing losses and revenues increasing to about $540 million in 2003.

Suitably gussied up, the stage was set for the public offering, which brought in enough capital for Doman to acquire another undervalued target in the building products business.

The purchase of Sodisco will put revenues nicely above the $1 billion mark, and with this critical mass, an improved product mix, and geographic distribution, CanWel should be better equipped to take on the competition.

Despite falling well short of our target of $4.74, this is a welcome offer. Our view is that the home building and renovation market has crested and is due for a retrenchment as interest rates ratchet higher.

Based on our purchase price of $1.19, that's a net total return of 173 percent over three years. Can't complain about that, but we will miss the jokes about chic tool belts and disco.


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