Domtar Slips 5% On Personal Care Unit Sale Deal

Shares of Domtar Corp. fell 5.1% on Friday after the paper mill company announced the divestiture of its personal care business to private-equity firm American Industrial Partners for $920 million.

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Domtar (UFS) said that it expects the deal to be completed by the end of the first quarter. Meanwhile, the sale proceeds will be used to repay $600 million in debt and to repurchase shares worth $300 million. The company’s CEO John D. Williams said that the business unit sale would maximize shareholders’ value, strengthen its balance sheet, and improve its liquidity position.

The move to sell its personal care business came after the company began a strategic review of its business in Aug. 2020. The company is focusing on its core paper, pulp, and packaging business. Moreover, Domtar is also planning to enter the containerboard market. (See UFS stock analysis on TipRanks).

Following the announcement, KeyBanc analyst Adam Josephson maintained a Hold rating on the stock. Josephson said, “The sale price/multiple were below initial consensus expectations from the best we can gather, but as the process dragged on, we think expectations had come down.”

The analyst added, “Domtar is now a pure-play pulp & paper company, and expects to become a sizable N.A. containerboard producer in the years to come; the Company will have more financial flexibility to do so following this sale.”

Overall, the consensus among analysts is a Hold with 6 Holds and only 1 Buy. The average price target of $30.80 suggests that Domtar shares have a downside potential of around 6.2% over the next 12 months. Shares declined 8.3% over the past year.