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Orgill acquisition of Chalifour Hardware

August 17th, 2015

Dear Castle Members

On August 10th the industry received the news regarding Orgill’s acquisition of Chalifour Canada. The industry release provided by Timbermart positions the acquisition as a “strategic alliance” that would suggest Timbermart may have a preferred advantage. I am writing to assure you this is not the case. In reality, Orgill bought a company that was in significant demise. You will also note that Orgill makes no reference of an alliance in any of their statements regarding the acquisition. What you are hearing is an opportunistic spin being presented by Timbermart.

The definition of “strategic” is centered on vision, planning, preparation and good execution. None of these embody the Timbermart strategy of owning and operating a hardware distribution company. In reality, they dramatically overpaid for the asset in 2010 and since the acquisition of Canwel Hardware, Timbermart has lost in excess of $1 billion of purchase volume from members who have left the group. Timbermart will now need to address the shortfall between what they bought and then eventually sold the Chalifour business for. The impact of this shortfall will likely create significant anxiety amongst their remaining members.

In 2007, we identified that national hardware distribution in Canada was not functioning at a level necessary to support the needs of our members. It was at that time we commenced our relationship with Orgill and collectively, we have worked over the past eight years to develop a hardware distribution strategy that has delivered tremendous value to our members.

In 2011, and almost entirely with the support of Castle, Orgill launched aggressively into the Canadian market. We worked effectively in assisting Orgill with the development of a Canadian sales force and our members have played a key role in addressing continuous improvement to their product offering. Over the past eight years, Castle members have attended and supported the Orgill Dealer Markets and today our volume has provided Orgill with backdrop to acquire a Canadian distribution footprint.

National distribution requires scale and size to be effective. The acquisition of Chalifour and the combined volume of Castle, now provides Orgill with tremendous synergies that will deliver greater value to Castle members in the future. The timing of the acquisition, based on a strong US dollar, works well in Orgill’s favor when acquiring a Canadian asset. The combination of an improving US market, Orgill’s growing Canadian sales volume and a weak competitor in Chalifour, provided the perfect scenario for Orgill’s acquisition.

As is typical when dealing with Orgill, they take advantage of opportunities to eliminate weak competitors. This follows their path of evolution in the US where Orgill has acquired several underperforming regional competitors in the past. A stronger, robust and larger Orgill in Canada is good for our members.

Castle has played an enormous role in the evolution of hardware distribution in Canada and we are largely the catalyst to the events over the past week. Every Castle shareholder should take great pride in changing the face of this important segment of our industry and the long term benefit that will be delivered as a result.

Ron Beal, Chairman, CEO and President of Orgill sent the following comment to me in a letter this past week. “Once again, thanks for your friendship, business, and support. We would never have ventured northward without the guidance and hand-holding by you, your team and the Castle members. Certainly we would not have lasted without the commitment and business from the Castle retail members. We look forward to repaying their confidence by bringing them the world-class hardware option they need and deserve”.

In closing, it was your vision, commitment and support that has led us to this point. Don’t ever let another group or competitor lead you to believe otherwise. Congratulations Castle!

If you have any questions, please do not hesitate to contact me directly. As always, we are at your service.

Personal Regards,

Ken Jenkins

Castle Building Centres Group Ltd. is a Canadian member-owned, Lumber, Building Materials and Hardware buying group committed to the success of the independent. Our commitment is to drive this success to our over 290 member locations though Transparency, Freedom and Profitability. Our business model focuses on accountability to our membership, member freedom of choice, and a commitment to their success, growth and profitability through strategic partnerships with key vendor partners and a winning hardware distribution solution.