Third Avenue makes bid to boost stake in Catalyst

VANCOUVER -- Catalyst Paper Corp.'s largest shareholder has launched a $129-million tender offer that would double its stake in the B.C. pulp and newsprint company to 38 per cent, a move one source said is aimed at acquiring the clout to protect its investment.

New York-based Third Avenue Management LLC, which already owns 19.8 per cent of Catalyst, is acting on the advice of Amit Wadhwaney, a portfolio manager who previously worked as a business analyst with Montreal paper giant Domtar Inc.

Before he joined Third Avenue in 1999, he was also a pulp and paper analyst with UBS Warburg, and has a reputation for knowing the sector inside out.

In an interview, Mr. Wadhwaney said Third Avenue is offering to pay $3.30 each for up to 39 million Catalyst shares, in part because the forest company's coastal B.C. mills are close to cheap energy, low-cost wood fibre, and deep water ports.

"Catalyst is extremely well positioned in a world where there has been an extreme contraction in newsprint capacity,'' he said.

But the offer is also defensive in nature, a source says. It aims to put Third Avenue in a position to block any strategic initiatives it doesn't like, either by calling a board meeting or by seeking support from other shareholders.

"He wants to protect his investment by making sure that whatever is done is value-enhancing,'' said the source, who is in the investment industry and has worked with Mr. Wadhwaney in the past, but did not want to be named.

Vancouver-based Catalyst issued a statement yesterday advising shareholders not to take any action until its board of directors has had the opportunity to review the offer and communicate its views to shareholders.

"We need to take the appropriate amount of time to review the details," said Lyn Brown, a spokeswoman for Catalyst, which is preparing to announce its second-quarter results on Aug. 1.

Paper industry analysts said management may have no option but to support the bid, which was announced after the close of trading on Tuesday.

"We don't think there is a strategic buyer out there for the company at this time," said Mark Bishop, a forestry industry analyst with RBC Dominion Securities Inc. in Vancouver.

"This tender offer brings us pretty close to what we think is fair value for the company," he said.

Stephen Atkinson of BMO Nesbitt Burns Inc. agreed.

"I think people will tender into the offer. There is no reason for them not to."

Shares of Catalyst rose 36 cents to close at $3.15 on the Toronto Stock Exchange yesterday.

Third Avenue, a mutual fund company with $23-billion (U.S.) in assets under management, sees itself as a long-term investor in Catalyst, but is not looking to run the business, Mr. Wadhwaney said.

"As long as management does the right thing we intend to be completely supportive of what they do,'' he said.

He observed that over the years management has continued to work at making cost improvements. "We hope to see more of the same."