On November 30, 2021, Paper Excellence completed the acquisition of all the outstanding common shares of Domtar Corporation (the “Company”) by means of a merger of Pearl Merger Sub (a wholly-owned subsidiary) with and into the Company with the Company continuing as the surviving corporation and as a subsidiary of Paper Excellence (the “Merger”). On the terms and subject to the conditions set forth in the Merger Agreement, each share of outstanding common stock of the Company was converted into the right to receive $55.50 in cash. The acquisition-date fair value of the consideration transferred totaled $2.796 billion, less cash acquired of $332 million.

Pearl Merger Sub was determined to be the accounting acquirer in the Merger which was accounted for using the acquisition method of accounting. The application of the acquisition method of accounting resulted in a new basis of accounting basis of the Company’s assets and liabilities which are measured at fair value at the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company is in the process of obtaining third-party valuations of certain tangible and intangible assets; thus, the provisional measurements of tangible and intangible assets, off-market contracts and deferred income tax assets are subject to change. Purchase adjustments were made related to events or circumstances existing at the acquisition date.

Fair value of net assets acquired at the date of acquisition
Receivables		$	513
Inventories			646
Prepaid expenses			50
Income and other taxes receivable			54
Property, plant and equipment			2,404
Intangible assets			221
Customer relationships	170
Trade names	30
Water rights	21
Operating lease right-of-use assets			53
Other assets			266
Assets held for sale			331
Total assets			4,538

Less: Assumed Liabilities
Trade and other payables			693
Income and other taxes payable			16
Operating lease liabilities (including short-term portion)			57
Long-term debt (including short-term portion)			529
Deferred income tax liabilities			519
Other liabilities and deferred credits			223
Liabilities held for sale			37
Total liabilities			2,074

Fair value of net assets acquired at the date of acquisition			2,464

The preliminary estimated fair value assigned to identifiable intangible assets acquired are determined primarily by using an income approach using a discounted cash flow methodology, which is based on assumptions and estimates made by management. The preliminary estimated fair value of the customer relationship intangible assets was estimated using the multi-period excess earnings method. Management applied significant judgement related to this fair value method, which included the selection of an expected EBITDA margin assumption for the forecast period, contributory asset charges, customer attrition rate and market-participant discount rate assumptions. These significant assumptions are based on company specific information and projections, which are not observable in the market (except for the discount rate assumption) and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions.

The preliminary estimated fair value of property, plant and equipment was primarily determined based on management’s preliminary estimate of depreciated replacement cost as further adjusted based on estimated cash flow forecasts. The significant assumptions underlying the fair value are based on company specific information and projections, which are not observable in the market and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions.

The preliminary estimated fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The preliminary estimated fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The preliminary estimated fair value of raw materials and operating and maintenance supplies was determined to approximate the historical carrying value. These significant assumptions are based on company specific information and projections, which are not observable in the market and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions.

For the three months ended March 31, 2022, the Company recognized $3 million of acquisition related costs. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income in the line item entitled Transaction costs.

The Predecessor period includes the historical financial information of Pearl Merger Sub prior to the business combination. The businesses, and thus the financial results of the Successor and Predecessor entities, are virtually the same, excluding the impact on certain financial statement line items that were impacted by the Merger mainly: