News SCAN

EPA finalizes Cluster Rule with nod to ECF

The Environmental Protection Agency (EPA) on November 14 signed off on the long-awaited pulp and paper "Cluster Rule," giving its final stamp of approval to regulations designed to "virtually eliminate" dioxin discharges to waterways and slash hazardous air emissions from U.S. pulp and paper mills. EPA's action endorsed the industry-backed proposal to cut pollution using elemental chlorine-free (ECF) bleaching technologies, which rely on chlorine dioxide rather than elemental chlorine (Option A), but drop the requirement for additional methods to further reduce pollution.

The Cluster Rule-the first multiple-media, industrywide regulation coordinated under both the Clean Air Act and the Clean Water Act-is expected to mean at least $2 billion in capital spending costs and several million dollars a year in operating costs. With the November 14 signing by EPA Administrator Carol Browner, compliance dates are set in motion. In accord with federal law, the rule takes effect 60 days from its publication in the Federal Register, which occurs 60 days (mid-January) after signing, according to the EPA.

The agency said the air portion of the Cluster Rule will cut 160,000 tons of hazardous air pollutants or 59% of current emissions; reduce sulfur levels by 47%; cut volatile organic compounds by 49%; and reduce particulate by 37% of current emissions. On the water side, EPA said the rule will reduce chloroform discharges by 99% of current levels and reduce wastewater discharge and sludge loading of dioxins and furans by 96% of current levels. This phase of the Cluster Rule will regulate air pollution from 155 of the 565 pulp, paper and paperboard mills in the U.S., while regulating toxic waste discharges from 96 of those 155 mills. In the end, the rule will facilitate cleanup of 73 rivers and waterways and lower dioxin-related health risks for populations that rely heavily on a diet of fish, EPA said.

The American Forest & Paper Assn. (AF&PA) kept a low profile on the Cluster Rule, as it has in recent months, releasing a statement by the group's president and CEO, W. Henson Moore, who said, "This is a tough new rule that presents formidable challenges to the industry." AF&PA noted that EPA's scientific data supported the ECF approach to bleaching, which AF&PA said "improves on its original proposal," a reference to the originally proposed 1993 Cluster Rule, which called for ECF bleaching in addition to oxygen delignification (OD).

The Cluster Rule as signed remains an expensive proposition, although industry and government have conflicting views on cost. The AF&PA said the Rule with ECF bleaching will impose an industrywide, capital cost price tag for both its air and water portions of $2.6 billion, with additional annual operating costs of $273 million. EPA estimates industry will need to invest $1.8 billion in capital expenses and about $277 million annually in operating costs.

Read more about the Cluster Rule in pponline.com's news department.

CORPORATE STRATEGY

Stone to pare debt, exits pulp, newsprint

In a move that will return its attention to containerboard and packaging, Stone Container Corp. said the company will exit the pulp business and almost fully withdraw from newsprint, using a "repositioning" plan designed to pay down debt in excess of $1.5 billion. The debt reduction plan will enable Stone to sell or "monetize" most of its Canadian assets-except two containerboard mills-along with its pulp operations in the U.S.

Under the proposed debt reduction plan, Stone will sell a restructured Stone Container (Canada) Inc. to CIBC-Wood Gundy Capital, a division of the Canadian Imperial Bank of Commerce, for a price still undisclosed. Its restructured Canadian segment will, at the time of the sale, consist of Stone's 25% stake in newsprint giant Abitibi-Consolidated Inc.-48.8 million shares valued at $720 million; Stone's 50% interest in boxmaker MacMillan-Bathurst, which operates 12 Canadian box plants; and Stone's specialty pulp mill in Portage-du-Fort, Que., which makes photographic pulp and, unlike the other two assets, is already part of Stone Container (Canada) Inc. Stone has already entered into a letter of intent with Wood Gundy Capital.

L-P reorganizes, sells pulp mill

Louisiana-Pacific Corp. (L-P) announced a major business reorganization and the sale of nonstrategic assets valued at approximately $1 billion, including the company's market pulp mill in Samoa, Calif., and 300,000 acres of California timberlands. The Portland, Ore.-based company said it will focus on increasing its core building materials operations.

L-P plans to use the proceeds from the asset sales to reduce debt and build shareholder value through investment and growth in its building materials business. Mark A. Suwyn, chairman and CEO, said, "Over the past 20 months, we have set the foundation for growth by recruiting a new senior management team, closing unprofitable facilities, settling major litigation, improving customer focus, and acquiring new businesses."

Domtar, Cascades
in C$1 billion merger

Cascades Inc. and Domtar Inc. agreed to merge their containerboard and packaging operations to form a new company that will give each an equal stake in what will become Canada's largest producer of linerboard, corrugating medium, and corrugated boxes. The new company-still subject to regulatory approval, financing, and due diligence-would have assets valued at C$1 billion (US$728.7 million) and pro forma sales for 1996 of C$861 million, making it the 10th-largest containerboard producer in North America. The deal is expected to close Dec. 31, 1997.

The new company has yet to be named but will include seven containerboard mills, 19 box plants, and employ roughly 3,800 people, with most operations located in Canada.

SALES & EARNINGS

Industry profits grow in third quarter

Third-quarter sales and earnings for U.S. paper and forest products companies showed a distinct improvement over the first two quarters of the year. Gradual, steady price recovery for most paper and paperboard grades began during the third quarter. Price hikes were phased in for newsprint, some coated papers, and uncoated free-sheet. Market pulp and containerboard prices also showed signs of recovery during the quarter. Tissue prices declined slightly and lumber prices also slipped downward.

Net income for the group was $928 million. This was 19% below reported net income of $1.1 billion in the third quarter of 1996, but it compares favorably with net income of $618 million in the first quarter of this year and $737 million in the second quarter. Despite lower average selling prices, total sales for the group were less than 1% below last year's level.

E.B. Eddy makes first stock offering

A public offering in mid-November by Canadian pulp and lumber producer E. B. Eddy Ltd. was expected to raise about C$1 billion (US$725 million). In September, Eddy's parent, food conglomerate George Weston Ltd., decided to spin off the company, saying it no longer fit within the mix of food processing and distribution businesses. The published range is C$18 to C$21/share; 50 million shares are to be offered. Weston has said it plans to use the proceeds to seek food processing acquisitions, most probably in the U.S.

Eddy, founded on the shores of the Ottawa River in 1851, is one of Canada's oldest continuing businesses. From its earliest days as a key supplier of matches to North America, it has become a niche player in several markets that concentrate on meeting the specific needs of a diverse number of end users.

Today, its primary markets are coated free-sheet papers, packaging and specialty papers, uncoated free-sheet, kraft pulp, deinked pulp, and lumber. The company operates four paper mills in Canada and the U.S. and in 1996 shipped about 467,000 tons of paper and 331,000 metric tons of virgin pulp. In addition it shipped about 362 million bd ft of s-p-f lumber.

Over the past few years, Eddy has embarked on a strategy of expanding into value-added coated paper grades-rather than commodity grades-in order to achieve higher margins, coupled with machine enhancements, to produce short runs on a cost-efficient basis.

A C$43 million dry-end modernization at the Hull, Que., mill completed in 1995 has enabled the company to add lightweight film and matte coated free-sheet grades targeted to the book publishing, commercial printing, and catalog markets. A C$26 million upgrade at the Island Paper mill near Vancouver, B.C., that is now complete (capacity addition of about 9,000 tpy) will add coated cover and bristol to Eddy's product line. Together, the acquisition of Island Paper (in 1993) and the Ottawa-Hull improvements have increased Eddy's coated free-sheet capacity to 225,000 tons. (A spokesman said the conversion from uncoated to coated on two machines, No. 1 at Island and No. 14 at Ottawa-Hull, have added nearly 10,000 tpy per machine, depending on basis weight.)

Malette Quebec Inc. of Montreal said it plans a rights offering of about C$14 million; the proceeds will be used to complete the second phase of an oriented strand board plant modernization. The facility is located in Saint-Georges-de-Champlain, Que., and now has a capacity of 900 million ft2. A previous capital improvement program was done in 1994.

Malette Quebec is 43%-owned by Malette Inc., a subsidiary of Tembec Inc. Other shareholders are Rexfor and Groupe Laperriere et Verreault.

CORPORATE STRATEGY

IP to sell imaging products business

International Paper Co. (IP) said it is completing negotiations leading to the sale of its imaging products business to several buyers. IP first announced plans to divest the business in early 1996, when it announced a $515 million pretax charge ($362 million after taxes) against first-quarter earnings. Approximately half of the charge covered restructuring of the imaging business, consisting of graphic arts supplies, photographic films and papers, and printing plates.

The imaging business is only marginally profitable due to industry overcapacity and rapid development of new digital imaging technology. In 1996, imaging products sales declined 8% to $715 million.

Quebecor studies breakup pla

Quebecor Inc., the Montreal-based holding company that controls newsprint producer Donohue Inc. and Quebecor Printing Inc., may be broken up into three publicly traded companies under a plan its board of directors is considering. If the plan were to go ahead, shareholders would receive proportional shares in Quebecor's investments in publishing, printing, and forest products.

The printing and forest products subsidiaries are currently traded publicly on the Montreal and Toronto stock exchanges, but the proposed breakup would allow shareholders for the first time to invest directly in the wholly owned publishing arm, Quebecor Communications Inc. The publishing assets, which include Le Journal de Montreal, the largest French language newspaper in Canada, are undervalued, say analysts, and have been overshadowed by the larger printing and forest products units.

NEWSPRINT

Dow Jones, Wash. Post to sell Bear Island

Dow Jones & Co. and the Washington Post Co. agreed to sell their stakes in the Bear Island Paper Co. mill and timberlands to Brant-Allen Industries Inc., their long-standing partner in the mill and property. As a result, Brant-Allen, of Greenwich, Conn., would become the 100% owner of the 213,000 mtpy mill in Ashland, Va., and of 150,000 acres of timberland in Virginia that supplies most of the pulp for making newsprint at the mill. Located about 85 miles south of Washington D.C., the one-machine mill includes a thermomechanical pulp (TMP) plant and a 50,000 metric ton deinking plant. Together Dow Jones and the Washington Post own 70% of the company, each with a 35% share; Brant-Allen owns 30%.

The purchase price was not disclosed. The agreement hinges on Brant-Allen lining up financing for the buy. Closing of the deal was expected by the end of this year.

Smurfit Newsprint drops agripulp project

Smurfit Newsprint Corp. has dropped out of a research and development project to make newsprint partly out of rice straw pulp. At its Oregon City, Ore., mill, Smurfit made 200 metric tons of newsprint in September 1996 with a pulp mixture of 40% rice straw, 40% thermomechanical pulp (TMP), and 20% old newspapers. Eight daily newspapers on the West Coast ran the newsprint.

Arbokem Inc.'s Al Wong, who devised the plan and process for using rice straw for making newsprint pulp, said he will start over looking for a paper producer interested in using agripulp. Arbokem and Smurfit began working together last year on agripulp for making newsprint.

PRINTING/WRITING PAPERS

Crown Vantage to seek buyer for mill

Printing/writing and packaging papermaker Crown Vantage Inc. said it will close its smallest paper mill in Newark, Del., with an eye toward selling it by the end of the year. The two-machine, nonintegrated mill has capacity to make 10,000 tpy of uncoated premium printing papers. Since January, only very short runs of specialty grades have been made at Newark as the mill has been downsized; the company said production year-to-date has been about 1,800 tons. The mill employs 43.

CEO Ernest S. Leopold said papers made at Newark are being shifted to other mills as part of a strategy to consolidate premium specialty grades from Newark to the Adams, Mass., and Ypsilanti, Mich., mills. Economy text and cover production is being moved from the Adams and Ypsilanti mills to the integrated facility at the Berlin-Gorham, N.H., mill. The company said in a news release that sheeting, cartonizing, and watermarking capabilities have been installed this year at Berlin-Gorham.

Crown Vantage Inc. announced the sale of approximately 108,000 acres of primarily hardwood timberlands located near its pulp mills in Berlin, N.H., and St. Francisville, La. The New England parcels, consisting of about 83,200 acres in New Hampshire and Maine, were sold to the Hancock Timber Resources Group and Yankee Forest LLC. The Mississippi and Louisiana parcels of about 24,600 acres were sold to Van Development and Van Petroleum. Total proceeds from the two separate transactions were about $36 million, which the company said it would use to pay down long-term bank debt.

Consolidated plans for capital spending

Consolidated Papers Inc. announced that it is planning to spend $245 million for capital improvements in 1998, up from approximately $200 million in 1997. Among the more than 25 major projects are paper machine rebuilds at the company's Biron, Niagara, and Kimberly, Wis., mills and the installation of new equipment at its Niagara, Converting and Kraft divisions. Since 1988, Consolidated has invested $1.8 billion in its operations while expanding its papermaking capacity 165% to approximately 2 million tpy.

CONTAINERBOARD

Corrugating medium PM online at Creative

Creative Paper Co. began production in late October on its new 100%-recycled corrugating medium paper machine in Worcester, Mass. The new machine was installed by Creative Packaging Inc., a Massachusetts-based producer of corrugated containers and displays. Production was originally slated to begin in August.

The new 110-in. trim machine, supplied by OverMeccanica SpA of Italy, has a capacity of 150 tpd. Fiber will be supplied from the converting operation's in-house box clippings and supplemented with old corrugated containers (OCC) recovered from the region.

PACKAGING

Caraustar eyes offer for carton maker

Caraustar Industries Inc. of Atlanta announced that it is considering a cash offer of approximately $270 million for Britton Group plc, a U.K.-based plastic and paper packaging group. The company operates in the U.S. through its subsidiary Universal Packaging Corp. (UPC), headquartered in Bow, N.H. UPC is one of the largest nonintegrated independent producers of folding cartons in the U.S. and ranks around number eight in the market. It operates six folding carton facilities located throughout the U.S. In the U.K., its plastics operations include extruded film products and security packaging.

Caraustar said it has approached the management of Britton with a view toward getting a recommendation to proceed with a formal offer. Caraustar's approach, however, was rebuffed by Britton's management. Robin Williams, chief executive, called Caraustar's proposal "purely opportunistic" and said the bid price of 1.20/share (US$1.95/share) was "absurdly low," according to local press reports.

TISSUE

New tissue mill to be built in Florida

World Wide Recycling Inc., a recycled paper broker based in Miami, Fla., is installing a tissue paper machine and deinking equipment from Italian equipment company Officine Meccaniche Toschi SpA. Two converting lines for the away-from-home market are being supplied by Fabio Perini. The mill is being built in Miami and will have a production capacity of 30 tpd of 100% recycled tissue. The paper machine is a complete mini-mill being supplied on a turnkey basis. The machine width is 104 in. with a maximum speed of 1,600 fpm. Startup is scheduled for first-quarter 1998. Project cost is $15 million.

P&G attempts South Korean takeover

Procter & Gamble Co. revealed a plan to acquire Seoul-based Ssangyong Paper Co. in what would be the first takeover of a South Korean company by a foreign investor. P&G will pay $69 million to buy a 25% stake in Ssangyong Paper from its parent company, industrial conglomerate Ssangyong Group, which owns 32% of the paper operation. P&G then plans to buy a further 26% of Ssangyong Paper stock on the open market through a tender offer which, if successful, would give it a majority share. The Ssangyong Group said it will sell its remaining 7% of its paper company shares on the open market.

The offer is conditional on P&G being able to secure the additional 26% of the stock, and on South Korean Government approval. According to a report by Bloomberg News, the acquisition would give P&G more than a 50% market share for sanitary paper products, including diapers, and could trigger government antitrust scrutiny. P&G already controls around half the sanitary products market in South Korea, and Ssangyong controls around 20%.

TIMBERLANDS

Companies file suit on timber issue

The Campbell Group Inc., a Portland, Ore.-based timberland investment adviser, is reportedly suing John Hancock Mutual Life Insurance Co. over having been fired from managing Hancock Timber Resource Group timberlands in the Pacific Northwest. A lawsuit filed Oct. 9 in Suffolk County Superior Court in Boston, where Hancock is based, alleges breach of contract and asks for an unnamed amount in damages and $33.8 million in "incentive fees" that Campbell says it earned in advising HTRG. According to the suit, Campbell had been managing 600,000 acres of timberland for Hancock clients, representing nearly all Campbell's business. Hancock said it ended its relationship with Campbell Sept. 29 after failing to reach a new agreement. Campbell said it manages about $1.3 billion for individuals and public and private institutional investors-including the California Public Employees Retirement System-buying, selling, and managing investment timberlands throughout the Northwest and Canada.

MacMillan Bloedel Ltd. (MB), Canada's largest forest products company, has launched a court action against the British Columbia government over compensation for the loss of timber rights on 7,500 hectares of land. The B.C. government had said the company was not entitled to compensation for relinquishing control of the concession equal to about 6 million m3 of timber. The government expropriated the land to create a series of public parks. MB has not put a value on the lost rights, but estimates reach as much as C$200 million ($144 million).

INTERNATIONAL

APP plans offering for expansion projects

Asia Pulp and Paper Co. (APP) said it will finance a portion of its pulp and paper mill projects in Malaysia and China with a $300 million issue of 15-year, zero-coupon senior unsecured convertible notes in the form of Liquid Yield Option Notes (LYONs). The LYONs will be sold to the public and are convertible into American Depositary Shares (ADS). The company also will sell roughly 50 million shares of equity. Earlier, the company filed a registration statement with the U.S. Securities and Exchange Commission for 30 million ADS to the public and 25 million ordinary shares to controlling shareholders. The ADS closing price Oct. 31 was 1138.

The net proceeds will be used for the 865,000 mtpy bleached hardwood kraft pulp mill in Malaysia and paper mills in Dagang and Suzhou, China. The Malaysia project is under construction; the Dagang mill would produce 800,000 mtpy of uncoated free-sheet on two machines and is slated to be operational in 1999. The estimated cost is $1.08 billion. The Suzhou paper mill would produce 250,000 mtpy of carbonless on one machine and 120,000 mtpy of tissue on two machines. Estimated cost is $750 million and production is set for the first half of 1999.

APP starts new board machine in China

Asia Pulp & Paper Co. (APP) said it has started commercial production on a second folding boxboard machine at the Ningbo mill in China. Paper machine No. 2 has production capacity of 650 mtpd, or 175,000 mtpy, of coated duplex and manila grades of boxboard. The machine will use a combination of kraft pulp and recycled fiber. The No. 2 unit, supplied by Voith Sulzer Paper Technology, has a wire width of 4.7 m (185 in.) and is equipped with four-ply fourdrinier forming sections and double coaters. It was originally due to start commercial production in August 1996, but startup was subsequently pushed back to the second quarter of 1997 and finally to the third quarter. A third new boxboard machine is due to come onstream at Ningbo in December. The cost of the two new machines totals $540 million.

Saffa in Italian cartonboard merger

Shareholders approved the merger of Italy's Saffa SpA and Reno de Medici SpA, creating Europe's second-largest producer of recycled folding cartonboard after Mayr-Melnhof AG of Austria. The merger will create a company with combined production capacity of approximately 850,000 mtpy at nine mills-six in Italy, two in Spain, and one in Slovenia. Saffa chairman Carlo Bonomi projected combined annual sales revenue of ITL1.1 trillion ($630 million) in 1998, according to Reuters.

Saffa incorporated the assets of Reno de Medici through a share swap, with 100 Reno shares exchanged for 67 Saffa shares. The combined company will have a European market share of 14%, compared with 17% for Mayr-Melnhof. In early 1990, the papermaking operations of Italy's Saffa Group were merged with the Spanish paper group Sarrio SA, in which Saffa is the majority shareholder. The mills actually operate under the auspices of Sarrio SA.

Champion to divest 18% of asset base

As part of a long-awaited restructuring, Champion International Corp. said it will divest a number of "nonstrategic" businesses accounting for about a quarter or $1.4 billion of its total sales. The move is aimed at making the company-one of the U.S.'s largest publication and printing/writing paper manufacturers-more profitable by focusing mainly on coated and uncoated free-sheet, containerboard, paper distribution, softwood timber, and lumber.

For sale is the newsprint business, including a recycling facility, groundwood specialty papers, a premium coated papermaking mill, the liquid packaging and bleached board manufacturing unit, and 325,000 acres of timberlands. The assets comprise about 18% of the company; the businesses to be sold employ 6,255 people or 26% of Champion's total workforce.