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(Reuters) - Norbord Inc NBD.TO will buy Ainsworth Lumber Co Ltd ANS.TO in a deal valued at C$762.6 million ($667 million) to become the world's biggest producer of oriented strand boards, the most popular roofing material in the United States.
The deal will help Norbord take advantage of any recovery in the U.S. housing market and cater to rising demand from Europe and Asia.
Oriented strand board (OSB), cheaper than plywood, is made up of strands of wood bonded with wax. It is also used for flooring and wall sheathing.
Norbord and Ainsworth have a combined OSB capacity of about 7.7 billion square feet, enough to cover the city of Toronto.
Ainsworth shareholders will receive 0.1321 of a Norbord share for each share held, the companies said.
The deal value of C$3.16 per share represents a 6 percent premium to Ainsworth's closing share price on Friday.
Ainsworth shares were up 8.4 percent at C$3.30 early trading on the Toronto Stock Exchange. Up to Friday's close, the stock had fallen nearly 29 percent this year.
Norbord's shares were up 2.6 percent at C$24.57.
Toronto-based Brookfield Asset Management Inc (BAMa.TO), which owns a majority stake in both the companies, will control about 53 percent of the common shares of the new entity, the companies said.
The companies said they expected savings of about $45 million annually from the deal.
Norbord mainly operates in the U.S. southeast, while Ainsworth largely operates in Western Canada.
Norbord Chief Executive Peter Wijnbergen will lead the new business while Jim Lake, chief executive of Ainsworth, will remain as an adviser for six months.
Reporting by Ashutosh Pandey and Darshana Sankararaman in Bengaluru; Editing by Saumyadeb Chakrabarty