The Caisse de dépôt et placement du Québec updates its decision to finance an investment in Kruger

The Caisse de dépôt et placement du Québec provides an update on its decision to finance an investment project in Kruger Inc., following various reactions expressed on the matter after this transaction was announced.

The Caisse was approached by Kruger at the beginning of December 2010 to finance an investment project of its Memphis, Tennessee mill.

At that time, Kruger indicated to the Caisse that it had stopped discussions with Investissement Québec earlier in Fall 2010 to make an investment in Crabtree but that it had clearly and unquivocally decided to invest in Memphis for the following

• proximity to its growing U.S. markets;
• production costs related to raw materials and, specifically, to the transportation of finished products, an important aspect for a low-weight but high-volume product; and,
• the strength of the Canadian vs. the U.S. dollar, which would harm the project’s competitive position.

According to Kruger, the financial analysis of the project will simply not allow this investment in Crabtree to be made for reasons of commercial viability. Consequently, for Kruger, this investment could only be made in the Memphis Mill. This is the reason why, at the time of the discussions with the Caisse, only the investment project in Memphis was presented. The Caisse’s decision on the financing was only finalized in March, much later in the process. The financing agreement as such was only completed on August 18, 2011.

For the Caisse, this represented an interesting business opportunity aimed at providing attractive returns for its depositors in Québec while supporting a Québec company striving to strengthen its presence in the North American market.

"Québec companies must go to where the markets for their products exist and cannot rely entirely on the Québec market," said Normand Provost, Senior Vice-President, Private Equity. "We firmly believe that one of the ways in which the Caisse can help develop these Québec job-generating champions is to support them in their expansion into new markets. We are acutely aware of the importance of encouraging the emergence of a new generation of Québec companies eager to spread their wings and, over time, generate economic benefits for Québec."
"We understand that others may have a different point of view on the Caisse’s approach to supporting Québec companies in such circumstances," added Mr. Provost.  "For its part, Kruger made a business decision and we are pleased to see that it was not influenced by the Caisse’s decision to respond to its request for financing."

ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. As at December 31, 2010, it held $151.7 billion in net assets. As one of Canada’s leading institutional fund managers, the Caisse invests in major financial markets, private equity and real estate. For more information: www.cdpq.com.