What happened

Shares of Domtar (UFS) traded up 15% on Tuesday after the paper manufacturer announced it has agreed to be acquired by Canadian rival Paper Excellence for nearly $3 billion.

So what

Paper Excellence is a privately held British Columbia-based manufacturer of pulp and specialty printing, writing, and packaging papers, and has been eager to expand its presence in the U.S. Domtar is an ideal way to accomplish that goal. Domtar, of South Carolina, operates about a dozen paper mills in the U.S. and Canada.

Stacks of paper on a conveyer belt.

Image source: Getty Images.

"This marks a major step in our global strategy of identifying well-positioned assets and positioning them for growth," Paper Excellence chief financial officer Joe Ragan said in a statement. "Domtar is a natural fit for our culture of operational excellence. We are enthusiastic about entering the American market as we continually improve Paper Excellence's ability to serve its expanding blue-chip customer base."

Terms of the deal call for Paper Excellence to pay $55.50 per share in cash for each share of Domtar, a premium of 37% to Domtar's closing price on May 3. Reports of a potential acquisition leaked a day later, causing the stock to move higher.

Now what

The market seems to believe the deal will get done, sending Domtar shares to nearly the $55.50 buyout price.

Given how close the current price is to the market price, there is no reason to buy in now for the premium. Unless something dramatically changes in the weeks to come, existing Domtar holders should start thinking about what to do with the cash they will get for their shares sometime in the second half of 2021.