Forestry Company converting to corporation, buying assets of Vancouver-based CellFor Inc.

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REBECCA PENTY
Telegraph-Journal

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Acadian Timber Income Fund (TSX:ADN.UN) plans to convert to a corporation before new tax rules on income trusts are at play to take advantage of a deal with a firm the fund is calling "the world's leading supplier" of high technology conifer seedlings.

The timberland operator will take control of spruce silviculture techniques and breeding stock from Vancouver-based CellFor Inc., key assets of which it will acquire as part of the conversion if the deal is approved by unitholders next month.

Acadian Timber spokesman Robert Lee said opportunities to work with firms such as CellFor "don't come around too often," and the firm jumped at the chance.

"The acquisition of CellFor's red and black spruce germplasm and associated licences and intellectual properties positions Acadian to accelerate its breeding and planting activities aimed at improving the productivity of its spruce plantations," Lee said.

"Spruce-fir forests make up approximately 50 per cent of Acadian's timberlands and the only species we grow in our nursery, or plant, is black spruce," he said.

Lee said CellFor is the only company Acadian Timber believes has discovered how to accelerate the natural selection process through somatic embryogenesis, a technique that allows the breeder to test new generations or lines of seedlings without having to wait for the seedlings to reach sexual maturity and produce seeds.

New tax rules for income trusts, announced by the federal government in 2006 to curb what it called corporate tax avoidance, come into effect January 2011.

Acadian Timber said Friday the fund has plans to convert to a corporation by January 2010.Under the conversion deal, the new company, Acadian Timber Corp., will also acquire $95 million in tax pools from CellFor.

Acadian will make a $4-million loan to CellFor and will acquire tax losses to help offset federal taxes when the forestry company becomes a corporation; CellFor will transfer much of its assets and liabilities to a new subsidiary.

Acadian Timber plans to pay out 20 cents per unit annually to unitholders, as announced in its third-quarter financial results last week.

The forestry firm owns and manages about 1.1 million acres of freehold timberlands in New Brunswick and Maine and manages about 1.3 million acres of Crown-licenced timberlands, selling softwood and hardwood sawlogs, pulpwood and biomass byproducts to over 110 regional customers.

The company, which also owns a nursery in Second Falls, has a long-term fibre supply agreement with Fraser Papers Inc. for its operations.

RBC Capital Markets forestry analyst Paul Quinn said the deal is a good one.

"It's a positive for the company in that it pushes out cash taxes until 2018 and it adds some interesting silviculture technology in the red and black spruce seedlings," said Quinn, who was educated in university as a forester."It just positions the company for unitholders in a good way in that it doesn't preclude a sale of Acadian," he said, explaining under terms of the deal, capital gain taxes are lowered.