Doman Industries Limited
Doman Industries Limited
Incorporated: 1955 as Doman's Lumber & Transport Ltd.
Sales: US$402.7 million (2002)
Stock Exchanges: Toronto Vancouver
Ticker Symbol: DOM.A
NAIC: 321113 Sawmills
Doman Industries Limited is one of the largest forest products companies in Canada. Doman Industries is an integrated producer, involved in logging and sawmilling timber into lumber and wood chips. The company's activities also include manufacturing facilities that add value to wood-related products and facilities that produce dissolving sulphite pulp. Doman Industries ranks as the second largest coastal woodland operator in British Columbia. The company's products are sold in 30 countries.
The Doman family's involvement in the British Columbia, Canada, lumber business began at the dawn of the 20th century, although the first signs of a Doman lumber empire did not appear until the second half of the century. Not long after leaving his native India, Doman Singh bought a sawmill and lumber mill near Duncan, British Columbia. The purchase was made in 1905, but it would be another half-century before the Doman family included a genuine lumber baron. Doman Singh's grandson, Harbanse "Herb" Doman, became such a figure, eventually presiding over a C$1 billion business that ranked as one of the largest concerns of its type in Canada. Herb Doman's success was undeniable, but the enterprising family patriarch also made mistakes that steered his empire perilously close to bankruptcy.
Herb Doman, along with his brothers Ted and Gordon, started the Doman Lumber Company in 1953, incorporating the venture two years later. The brothers began by hauling and selling building supplies, two facets of Doman Industries that would help support the company for decades, but businesses it eventually exited. The building supply stores were replaced by a lumber wholesaling business in 1984. The trucking division evolved greatly from its modest beginnings, expanding throughout British Columbia and extending into Alberta and the Yukon, as well as into 11 western states in the United States. Despite its stature, the trucking business was sold at the end of 1990, by which time the Doman name had firmly implanted itself within the lumber business as representing a premier enterprise.
The development of Doman Industries' lumber business began a decade after the three Doman brothers founded their company. The Doman Lumber Company became Doman Industries in 1964, a name change that coincided with the company's debut as a public company, when it generated C$6 million in annual revenues. The year also marked the company's entry into the sawmilling and logging business, a move that initially involved four major sawmills on Vancouver Island. Doman Industries' first major sawmill, located at Ladysmith, became operational in 1967. The company's first sustained yield logging operation commenced in 1969, providing a supply of lumber for the Ladysmith facility and other sawmills to follow. In 1973, Doman Industries added a sawmill at Chemainus, by which point the company was selling 20 million board feet annually. The establishment of a facility at Chemainus was followed by a sawmill at Cowichan Bay in 1976 and another mill at Nanaimo in 1980.
By the end of the 1980s, Doman Industries had blossomed into a formidable lumber giant. Revenues neared C$700 million at the decade's conclusion, and Herb Doman ranked as aristocracy in the country's lumber industry, particularly in British Columbia where the company's Duncan headquarters was located. The company was at the top of its game at the end of the 1980s, but from that point forward its success began to slowly fade, leading to a wrenching saga of bad choices exacerbated by external forces that conspired to turn one of Canada's leading lumber companies into a floundering venture. The problems began in 1989.
Hard Times in the 1990s
Of all the problems afflicting Doman Industries at the end of the 20th century, none delivered a more stinging blow than debt. The company's financial difficulties stemmed from its investment in Western Forest Products Ltd. (WFP), a joint venture company Doman Industries and two other British Columbia forest products companies formed in 1980. For C$420 million, the three companies acquired the British Columbia timber resources and manufacturing facilities belonging to a company named ITT Industries of Canada Limited. Included in the purchase were a dissolving sulphite pulp mill located at Port Alice, British Columbia, a pulp mill in Squamish, British Columbia, and three sawmills, as well as certain timber tenures. The problems associated with WFP did not emerge until 1989, when Doman Industries increased its ownership to 56.1 percent. Before increasing its investment in WFP, the company was virtually free of debt, but after securing control over WFP, Doman Industries was nearly $600 million in debt, putting the company in a hole it could not escape for more than the ensuing decade.
At roughly the same time the WFP investment became a ticking time bomb, Herb Doman found himself embroiled in controversy. In the fall of 1987, the U.S. forestry giant Louisiana-Pacific Corp. began accumulating shares of Doman Industries, a prelude to the Portland, Oregon-based company's offer of $12 per share for Doman Industries in October 1988. Louisiana later withdrew its offer to acquire Doman Industries, scuttling the C$250 million deal on November 4, 1988, a dark day in the history of Doman Industries. Herb Doman was accused of informing former British Columbia premier Bill Bennett and his brother, Russell Bennett, of the deal's collapse less than five minutes after it occurred. Within minutes, the Bennett brothers sold more than 500,000 Doman shares. The sale led to insider trading charges against Herb Doman and the Bennetts. The parties were acquitted in May 1989 by the British Columbia Provincial Court, but the British Columbia Securities Commission (BCSC) and the Ontario Securities Commission launched their own investigations. These investigations dragged on for years, providing an ugly backdrop to the company's increasingly damaging debt situation.
Doman Industries entered the 1990s saddled with debt and its founder and chairman facing a protracted legal struggle. Conditions in the new decade exacerbated the company's position, making for the most difficult period in Doman Industries' history. One individual keenly aware of Doman Industries' financial plight was Herb Doman's youngest child and only son, Jaspaul "Rick" Doman. Although he had preferred a career in finance, Rick Doman followed his father's wishes and joined the lumber industry at age 17, when he worked as an independent wholesale lumber seller. Rick Doman joined Doman Industries' board of directors in 1986, from which vantage he witnessed the company's decision to take on substantial debt in 1989. By 1994, his concerns about the company's financial position forced him to react. He persuaded his father to consider issuing corporate bonds in order to reduce debt, but his efforts failed. "He just about threw me out of his offices," Rick Doman said, remembering his father's response in a March 2003 interview with B.C. Business. Rick Doman discussed his idea with his fellow board members, but the other directors dismissed his proposal. Rick Doman's struggle to have his warnings heeded had just begun.
As the mid-1990s approached, forces conspired against British Columbia lumber companies and against Doman Industries in particular. Part of Rick Doman's concern about his family's business was based on his perception of an emerging global lumber economy. In his mind, new competition for a company saddled with debt was one development Doman Industries could ill afford. Beginning around 1995, his fears became reality, as countries in central Europe and South America entered the market, offering their dry, relatively inexpensive, and market-specific lumber for sale. At roughly the same time, Herb Doman suffered a severe stroke in the summer of 1995 that left him partially paralyzed and unable to steward his company. For a six-month period, Rick Doman and Vice-President Jack Abercrombie led Doman Industries just as the new competition spawned by a global lumber market became perceptible to the Duncan-based company's business. With active control over the company, Rick Doman reiterated his growing concerns about the company's position, but he failed to gain the support of the board. According to Rick Doman, the board was convinced the company was merely experiencing a downturn in a historically cyclical business. "The board's view was that things always get better," he said in his March 2003 interview with B.C. Business. "And my view," he added, "was that this time was different."
During the latter part of the 1990s, Doman Industries' debt mounted, heightening the company's sensitivity to the impact of negative industry trends. Further, the company needed cash to maintain its operations, but the annual interest payments on the debt made capital improvements impossible. Doman Industries' facilities on the British Columbia coast, for instance, needed to be retooled for changing markets, but the company could do nothing. Meanwhile, Herb Doman's legal troubles were proving to be as persistent as the company's debt. In 1996, the BCSC found Herb Doman and the Bennetts guilty of insider trading, but an appeal to the Supreme Court of Canada was filed, ensuring that another round of debate awaited before the matter was resolved.
- The Doman Lumber Company is founded.
- Doman Industries Limited debuts as a publicly traded company.
- The company's first major sawmill becomes operational.
- Doman Industries increases its investment in Western Forest Products Ltd., thereby greatly increasing its debt.
- Doman Industries acquires Pacific Forest Products Ltd.
- Herb Doman is ordered by the British Columbia Securities Commission to vacate Doman Industries' presidential post for eight months.
- Rick Doman is appointed president.
- A restructuring plan is announced.
As Herb Doman's legal battle dragged on, the company completed another major acquisition and made another grievous error. In 1997, Doman Industries paid C$143.8 million for the operations of Pacific Forest Products Ltd. in British Columbia. The acquisition included three sawmills, woodland, and related operations that increased the company's annual fiber supply by roughly 80 percent. The acquisition was strategic and market-specific, reflective of management's decision to bolster its activities in the Japanese market. Yet the acquisition could not have been more ill-timed. Soon after the Pacific Forest purchase was completed, the Japanese economy deteriorated, plunging into an unprecedented recession that afflicted all of Asia. The Asian lumber market collapsed as a result. The Japanese market, which had been purchasing 2.3 billion board feet annually from British Columbia producers, was the first to succumb to the pernicious economic forces, delivering a heavy blow to Doman Industries.
Troubles in the Late 1990s
The problems plaguing Doman Industries were increasing, shaking the very foundation of the company. The company's debt, which had increased because of the Pacific Forest acquisition, neared a staggering C$1 billion by the end of the 1990s. Unfortunately for the company, the situation worsened as the new century neared. In 1999, all the appeals of Herb Doman's legal troubles were exhausted. The BCSC banned the Bennett brothers from trading in stocks for ten years and ordered Herb Doman to remove himself as Doman Industries' president for eight months.
As Doman Industries entered the 21st century, it was able to leave Herb Doman's legal troubles behind, but the resolution of the insider trading case was the only problem the company could count as part of the past. In 2000, the company's debt reached C$1 billion. At the beginning of the following year, when the company was on the verge of bankruptcy, Herb Doman suffered his second stroke and fell into a coma for several weeks. To Rick Doman's surprise, the company's board of directors asked him to replace his father as president. Although he had experienced years of frustration in dealing with the board, and earlier had decided to quit the board in the beginning of 2001, Rick Doman accepted the offer. In February 2001, Rick Doman was named president.
"I knew three things needed to be done immediately," Rick Doman said in his March 2003 interview with B.C. Business. "We had to reduce inventory, cut costs, and restructure the company." With Rick Doman at the helm, Doman Industries' C$340 million inventory was reduced by C$150 million. Costs were cut as well, but again Rick Doman found it difficult to convince the company's board to restructure. He was approached, in July 2001, by Tricap Restructuring Fund, a subsidiary of Ontario-based Brascan Corp., an investment conglomerate. Tricap wanted to assist in the company's recovery in exchange for equity. Rick Doman wanted to negotiate with Tricap, but Doman Industries' board was against exchanging debt for equity. Meanwhile, as the company's situation worsened, lumber industry developments worked against its favor. In March 2001, the softwood lumber agreement between Canada and the United States expired. In May 2002, the United States introduced a 27 percent tariff on Canadian softwood imports, which greatly impacted Doman Industries' business. British Columbia generated half of the C$10 billion in Canadian lumber shipped into the United States annually. For its part, Doman Industries relied on the U.S. market for 65 percent of its business. Within one month, the introduction of the new tariff cost Doman Industries more than C$4 million.
Doman Industries' financial situation finally reached a point where some decisive action needed to be taken. After more than a decade of proceeding with a progressively worsening limp, the company was unable to make a $26 million interest payment in March 2002, two months before the 27 percent tariff was put into effect. In September 2002, after the Canadian federal government rejected a request for loan guarantees, the company missed a second interest payment. Rick Doman informed Doman Industries shareholders and bondholders that the company could not meet its debt obligations. At this point, Tricap returned its offer and finally the board relented. In November 2002, the company announced that a group of Doman Industries' unsecured bondholders, led by Tricap, had made a bid to become its owners in exchange for writing off $600 million of the debt.
The conclusion of Doman Industries' saga was not complete by the time the company celebrated its 50th anniversary. The restructuring agreement announced at the end of 2002 was later abandoned, having lost the support of bondholders. By August 2003, Rick Doman was talking with Cerberus Capital Management about a debt-refinancing deal, but nothing about the company's future was settled. A solution to the company's debt problem loomed as the company's most pressing issue. Whether or not Canada would lose one of its largest lumber concerns remained to be seen, as Doman Industries struggled mightily to unravel the web of problems spun during the 1990s.
Doman Forest Products Limited; Western Pulp Limited Partnership; Western Forest Products Limited; Doman Log Supply Ltd.; Doman-Western Lumber Ltd.; Eacom Timber Sales Ltd.; Western Pulp Inc.
Deltic Timber Corporation; Hampton Affiliates; Plum Creek Timber Company, Inc.
"Doman Buys Pacific Forest Holdings," Pulp & Paper, February 1998, p. 23.
"Doman to Buy WFP Shares; Champion May Sell Plymills," Forest Industries, March-April 1992, p. 7.
Kershaw, Jim, "What Would You Have Done?," BC Business, November 1996, p. 26.
Paterson, Jody, "Fight to the Finish: Rick Doman's Battle to Save the Business That Bears His Family's Name," BC Business, March 2003, p. 44.
Schreiner, John, "Doman Is Poised for a Good Year," Financial Post, February 20, 1993, p. 26.
——, "No End in Sight to Bennett-Doman Insider Imbroglio," Financial Post, August 27, 1994, p. 14.
—Jeffrey L. Covell