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Donohue buys 2 of Champion’s mills
Making its third newsprint acquisition in the last four years, Donohue Inc. in late March agreed to pay $450 million for Champion International Corp.’s two newsprint mills and three recycling plants in Texas. Donohue would become the third-largest newsprint producer in the world with almost 2.2 million metric tons of capacity, would operate mills for the first time in the U.S., and would take on at least 175,000 tpy of uncoated groundwood—a new segment for the almost exclusively newsprint and lumber producer. The newsprint mills are in Sheldon and Lufkin, Texas. With the Donohue purchase, Champion, the seventh-largest North American newsprint producer, would exit the newsprint market.
Donohue would become the largest Canadian-based newsprint producer in the U.S. South by assuming the Texas newsprint mills, which had a capacity of about 725,000 mtpy last year. The deal would also vault Donohue to third place in North American newsprint manufacturing, behind Abitibi and Bowater (assuming Bowater’s agreement to buy Avenor Inc. is completed in the second quarter). In all, the three top producers would control 50% of the 16.1 million mtpy capacity market: Abitibi with 20%, Bowater 16%, and Donohue 14%.
Combined, the Donohue-Champion newsprint operation would have had about $1.7 billion (C$2.38 billion) in sales last year. Along with newsprint, Donohue also has 425,000 tpy of market pulp capacity at two mills in Matane and St. Felicien, Que., and 16 sawmills with capacity of 1.4 million bd ft.
Donohue sees potential in the Texas operations, but needs to spend $280 million to improve the mills, raise capacity, and lower their production costs in the next two to three years, president and CEO Michel Desbiens said. He said he would like to increase Lufkin’s operating efficiency to 85% on groundwood specialties and to reduce the amount of newsprint it makes, using only the No. 2 machine that runs at 4,000 fpm.
At Lufkin, the capital expenditures will total $170 million, including $60 million to meet Environmental Protection Agency Cluster Rule requirements. Two of the four machines will be modernized. Desbiens said the company expects to change to some other grades and change basis weights for a better product mix, but he wouldn’t elaborate. He said the higher-cost stone groundwood and semi-bleached kraft operations will be kept in place.
Desbiens said Donohue would immediately begin work on speeding up machines and doubling the deinking capacity at the Sheldon mill, which is now 175,000 mtpy. About $24 million will be spent on upgrades to the three machines, raising papermaking capacity (now 470,000 tpy) by 30,000 metric tons. The deinking project is expected to cost $85 million. With the added capacity, the Sheldon mill would produce newsprint with a furnish of 75% to 80% recovered paper and 20% to 25% thermomechanical pulp. The mill’s stone groundwood system would be shut down.
Old newspapers and magazines would be fed to the Sheldon mill from 3,800 collection bins and three sorting centers in the Dallas-Fort Worth area, Houston, and San Antonio. Desbiens said the recycling plants had been underused and could source enough recovered paper.
• Fletcher Challenge Canada Ltd. (FCC) announced in late March that it was in final negotiations to buy a controlling interest in the Philippines’ largest newsprint maker, Trust International Paper Corp. (TIPCO). The TIPCO mill, located outside Manila, has capacity to make 200,000 mtpy of newsprint completely out of recovered paper. With the economic woes in Asia, TIPCO has been trying to sell newsprint on the West Coast for the past several months. FCC, whose two newsprint mills in British Columbia have been closed by strike since July 14, can produce up to 727,000 mtpy of newsprint.
Bowater outbids Abitibi with offer for Avenor
Bowater Inc. jumped to almost the top of the world’s newsprint market with a $2.47 billion (C$3.5 billion) offer for Avenor Inc. The consolidation would make Bowater the second-largest newsprint maker in the world, and the second-largest in North America, behind Abitibi-Consolidated Inc.
In the chase for Avenor’s assets, Bowater bid 25% higher than Abitibi’s offer. Avenor’s board of directors welcomed the deal, signing a definitive agreement with Bowater on Mar. 9 for the consolidation and agreeing not to solicit or encourage any competing offers. Avenor’s interim president and CEO Arthur Sawchuck expected the agreement to be approved by shareholders by the end of June.
If the consolidation goes through, the three largest North American newsprint producers (Abitibi, Bowater, and Donohue Inc.) would control 45% of North American newsprint capacity.
Bowater chairman and CEO Arnold Nemirow said Bowater settled on the C$35/share ($24.67/share) because the company "felt there was competition right below” and that Avenor shareholders favored the price. Bowater’s purchase price includes assuming about C$1 billion in Avenor debt.
Rather than the teaming of Abititi-Consolidated and Avenor—two rivals based in the same city (Montreal, Que.)—the Greenville, S.C.-based Bowater-Avenor combination mixes America’s largest newsprint producer with the third-largest producer in North America, respectively. The combined newsprint capacity would be 2.7 million metric tons. This is still about a million tons behind Abitibi-Consolidated, but positions Bowater as a prime competitor on pricing and market leadership inside and outside North America. Bowater would have a 16% market share in North America and 7% share of the world market. Bowater would gain its first exposure on the West Coast and a potentially greater presence offshore.
With Avenor’s assets, Bowater would run 11 pulp and paper mills, including eight newsprint mills. With Avenor and Bowater mills working together on fiber, transportation, and orders, Nemirow expects synergies of $75 million (C$105 million) in the first year or so.
Other than newsprint, the bigger Bowater would also have capacities of an estimated 335,000 metric tons of uncoated groundwood, 400,000 metric tons of coated paper, more than 1 million metric tons of market pulp, 500 million bd ft of lumber, and access to or ownership of 8.7 million hectares of timberland in four provinces and six states.
Bowater will sell Avenor’s 300,000 mtpy northern bleached softwood kraft pulp mill and 310,000 mtpy uncoated free-sheet mill in Dryden, Ont., to reduce debt. The company expected to complete the sale by the end of this year. Analyst Chip Dillon of Salomon Smith Barney estimated that the mill could bring $400 million in proceeds.
Abitibi invests at Beaupre mill
Abitibi-Consolidated Inc. will invest C$50 million in additions to paper machine No. 1 that are intended to increase capacity and improve the quality of the alternative offset groundwood paper made at the Beaupre, Que., mill.
Work on the so-called "Ultra” project should start on the 90,000 mtpy machine by year-end with the additions completed by June 1999. A size press and coating kitchen will be added. The machine’s speed will be enhanced, increasing capacity to 105,000 mtpy, said Michel Maille, general manager, Beaupre division.
The machine makes offset paper with 80 brightness and no coating. With the additions, the offset paper is intended to have brightness of 83 to 84 and be lightly coated, Maille said. The offset paper will be marketed for books, instructional manuals, and financial manuals.
Some publishers switch from LWC to SC
In what could be the beginning of a trend, two magazines—McCall’s and the Washington Post Sunday Magazine—recently switched from predominantly lightweight coated (LWC) to high-grade supercalendered (SC) paper. Sources said several other magazines, among them other "women’s” magazines, were considering SC paper for all or part of their books.
North America’s SC makers have long sought to increase market share in the U.S. magazine/catalog market. (SC paper is used in just 10% of U.S. magazines, according to estimates, while SC is used in about half of Europe’s magazines.) The monthly McCall’s (circulation about 4 million) began using using 32-lb SC-A+ paper last year in the December issue and the Washington Post magazine, which circulates inside the Sunday edition to 1.1 million readers, made the move on Feb. 15 to 38-lb SC-A.
The conversions partly stem from a larger-than-usual price differential (25% in February) between LWC No. 5 grades and SC-A, and because improvements by several producers are taking SC to new heights, making it comparable in quality to LWC. In February, 34-lb LWC roto No. 5 sold for $1,070/ton to $1,120/ton, compared to 35-lb SC-A at $815/ton to $860/ton.
The conversions come as the industry readies for the startup in April of the first full SC-A+-producing machine in North America at the Stora Port Hawkesbury Ltd. mill in Nova Scotia. Startup is slated for about Apr. 15, a company executive said; plans are to sell it at 10% to15% below LWC prices. Stora has made clear its intent to serve traditional coated groundwood users—bound to be a concern to North America’s largest LWC makers, such as Consolidated Papers Inc., International Paper Co., Mead Corp., and Champion International Corp.
"There’s some interest in moving to SC, but it’s too early to call it a trend,” a source said. "The customer may save a lot of money by switching to SC,” said an executive with a large American publishing paper producer, "but if the cost of printing the magazine or catalog rises because of press slowdowns, paper waste, or bindery waste, it may come out as a wash for the publisher or end user.”
At the Washington Post, going to SC allowed the company to add three columnists to the Sunday magazine because of the anticipated savings on paper cost, a source said. Norske Skog and an unamed North American company are the main suppliers. The Post continues to use LWC for the Sunday magazine’s cover page. McCall’s has been using SC-A+ from a UPM-Kymmene Corp. mill and has been pleased with the quality, as well as cost savings.
Crestbrook sheds Al-Pac; Alberta sells loan
Crestbrook Forest Industries Ltd. is getting out of its pulp mill joint venture with Alberta-Pacific Forest Industries Inc. (the Al-Pac mill), selling its 40% interest to a new company formed by Mitsubishi Corp. and Oji Paper Co. Mitsubishi and Oji own 60% of the 520,000 mtpy mostly northern hardwood kraft pulp mill in Boyle, Alta., through various subsididaries.
Meanwhile, the Alberta government would swallow about C$140 million of debt owed by Al-Pac in return for accepting a cash payment of $260 million, the amount representing the principal of a loan made for the project in 1991.
The new corporation would assume all of the obligations of Crestbrook relating to the Al-Pac joint venture and Crestbrook will receive C$10 million in cash without further adjustment, Crestbrook said in a statement. Crestbrook shareholders will vote on the proposal at the end of April and the joint venturers would need to arrange replacement financing for the project. The deal also depends on the new company’s ability to refinance the Al-Pac debt, including settlement of the Alberta subordinated debt, and the satisfactory assign-ment of the Forest Management Agreement under which Al-Pac operates.
Fort James expands in Turkey
Fort James Corp. announced plans to more than double tissue capacity at its Turkish joint venture operation, Ipek Kagit Sanayi ve Ticaret, with the addition of a 50,000 tpy machine at Karamursel, near Istanbul. Fort James has a 50% stake in Ipek Kagit, with the remaining 50% owned by Eczacibasi Holding A.S.
The new machine, scheduled to start up in late 1999, will take the mill’s capacity up to 87,000 tpy and help boost Ipek Kagit’s current 58% share of the Turkish towel and tissue market. The company also indicated that some of the new capacity would be targeted at the Middle East and Eastern Europe, including Russia.
Last November, Fort James started commercial operations at a converting plant outside Moscow, using two bath tissue and two napkin converting lines that were moved from unnamed European plants. The new Russian operation, together with imports of other products from the company's European tissue operations, is expected to generate 10,000 tpy of new sales in the country within three to four years.
The former James River Corp. started exporting tissue products to Russia in 1994 from its Finnish operations. Parent rolls of tissue from the Nokia, Finland, plant will by used by the new Russian converting facility.
Encore Paper schedules projects
Encore Paper Co. plans to increase tissue output at its South Glen Falls, N.Y., mill by over a quarter with the rebuild of two of its three paper machines, ending its purchase of paper products from out of state to meet demand. Debottlenecking of the mill’s No. 1 and 3 machines will increase capacity of the 70,000 tpy facility by around 20,000 tons.
In addition, the company plans to rebuild the larger of its two deinking plants, increasing recycled tonnage from 90,000 to 120,000 tpy, and increasing the quality of the pulp. The expansion program is expected to begin immediately, with completion scheduled for mid-1999.
Tenneco acquires specialty packaging
Tenneco Packaging announced a definitive agreement to acquire Richter Manufacturing Corp., a leading producer of protective packaging products in the western U.S. Based in Pomona, Calif., with additional production facilities in Visalia, Calif., and Kent, Wash., Richter manufactures and distributes air-cushioned plastic packaging (bubble wrap), padded mailers, cushion pads, and polyethylene foam protective packaging. The acquisition complements Tenneco’s existing product line, which includes the protective packaging products of Astro-Valcour Inc. (AVI), acquired from KNP BT in 1997, and Tenneco’s Hexacomb protective packaging business.
Paul Stecko, COO of parent Tenneco Inc., said the Richter acquisition will expand the business across the U.S., especially in California. John Schwab has been appointed vice president and general manager of the North American protective packaging operations.
Rock-Tenn raises board prices
Rock-Tenn Co. announced a 9% price increase for its laminated coverboard products effective with shipments beginning on Apr. 27. The announcement was made by Alford L. Smith, executive vice president and general manager of the laminated paperboard products division. Rock-Tenn is the largest North American producer of coverboard products for the book industry and is supplied by five recycled paperboard mills and eight laminated products plants located across the country. Smith said the price increase will partially recover the costs of new capital investments to meet customer requirements and allow Rock-Tenn to recover reduced operating margins.
The company has invested millions of dollars in new converting equipment, developed innovative new die cutting technology, and designed all new logistics systems. The company’s goal by the year 2000 is to routinely manufacture laminated coverboard products with three-day lead times.
Mail-Well seeks IP label-making division
Mail-Well Inc. of Englewood, Colo., signed a letter of intent to acquire the label business of International Paper Co. The sale includes both the label division, which operates the country’s largest label printing plant in Bowling Green, Ky., and the graphics division, also based in Bowling Green. The label division had 1997 sales of approximately $30 million and is a key supplier of glue-applied paper labels for canned and bottled foods, beverages, and household products. In a surprising move, IP last year identified the label division as one of many business units it would sell as part of a major restructuring program aimed at bringing in more than $1 billion in proceeds.
IP completed construction of the sprawling 236,000 ft2 facility in 1993 at a cost of $26 million. The printing plant is currently equipped with six lithographic presses that can produce 18 million labels daily. It was originally designed to run as many as 11 lithographic and offset presses and produce 50 million labels daily at full capacity. The primary paper used for labels is 60-lb coated one side (C1S) offset.
The acquisition of the IP label division continues Mail-Well’s rapid consolidation of the label printing business. Mail-Well earlier acquired the paper label division of Lawson Mardon Packaging Inc. *
Ivex Packaging to acquire PET maker
Ivex Packaging Corp. in late March launched a tender offer for all the outstanding shares of Ultra Pac Inc., the leading U.S. manufacturer of polyethylene terephalate (PET) plastic containers and packaging for the food industry. Ultra Pak, headquartered in Rogers, Minn., encouraged shareholders to accept the $15.50/share cash offer. Ivex, based in Lincolnshire, Ill., is a vertically integrated manufacturer of paper and plastic packaging products for consumer and industrial markets. The company operates four small specialty paper mills in Illinois, Michigan, and Ohio. It also operates several plastic extrusion and converting facilities that manufacture oriented polystyrene (OPS) and PET products.
Borden sells décor products business
Borden Inc., the food processing and chemicals giant, is selling its decorative laminate products business to American Capital Strategies Ltd., a Bethesda, Md.-based specialty financial firm, for about $33 million. Borden’s décor business includes vinyl wallcoverings and decorative laminates used as surface coverings for furniture, countertops, and panels. Decorative laminates include wood grain and other designs printed on specialty papers that are laminated to particleboard, saturating kraft paper, and other substrates. The décor business operates two plants in Columbus, Ohio, where it is based, and St. Louis, Mo. It had sales of about $105 million last year; industrial laminates accounted for more than half.
Wausau-Mosinee announces job cuts
Wausau-Mosinee Paper Corp., a major producer of technical specialty papers, in March announced plans to reduce its work force by slightly more than 8%, or by about 300 employees. The company currently employs about 3,600 people at 11 paper manufacturing and converting facilities. The company also produces fine printing/writing papers and paper towel and tissue products. The job reductions are part of the overall cost reductions anticipated through the merger of Wausau Paper Mills Co. and Mosinee Paper Corp., which was completed in December. The job cuts will be made throughout 1998 and 1999, substantially through early retirements, voluntary separation arrangements, and severance announcements, said the company.
These programs and several capital projects will lead to annual cost savings of $23 million. By late 1998, the company expects to add an additional $7 million of cost savings from purchasing cost reductions, administrative savings, and manufacturing efficiencies. The company expects to record a one-time pre-tax restructuring charge of $37.7 million in the first quarter of 1998 to cover the costs of the job reduction program and other costs related to the merger. As a result of the charge, the company expects to report a loss for the first quarter.
Caraustar approves wallboard paper mill
Caraustar Industries Inc. approved plans to proceed with vendor and site selection, as well as preliminary design and engineering work, for construction of a new greenfield paper mill to produce gypsum wallboard facing paper. The new mill will have production capacity exceeding 225,000 tpy, said Randy Foster, Caraustar’s vice president, sales and marketing. Construction is expected to take approximately three years with a projected startup in the first half of 2001. The company has yet to determine a site location, but the mill will be built in the U.S.
Caraustar, headquartered in Austell, Ga., is the largest independent supplier of gypsum wallboard facing paper in North America. It operates four recycled paperboard mills that produce this grade. In 1997, these mills had shipments of approximately 265,000 tons of gypsum paper, about the same level as the year before. Total U.S. industry shipments of gypsum wallboard edged up to 25.5 billion ft2 in 1997 from 24.7 billion in 1996. In Canada, shipments grew to 3.3 billion ft2 from 2.9 billion ft2. Shipments are forecast to grow about 3% in 1998.
• Caraustar Industries Inc. has completed the acquisition of Chesapeake Paperboard Co. and its wholly owned subsidiary, Chesapeake Fiber Packaging Corp. Chesapeake operates a 230 tpd recycled paperboard mill in Baltimore, Md., and a folding carton and specialty corrugated products converting plant in Hunt Valley, Md.
Riverwood selling Australian carton unit
Riverwood International Corp. said it is selling its Australian folding carton business to Carter Holt Harvey Ltd. (CHH) of New Zealand subject to a definitive purchase agreement. Riverwood is the second-largest supplier of folding cartons in Australia and operates five converting plants there. Amcor Ltd. is ranked the country’s top carton supplier while CHH is the top supplier in New Zealand. Riverwood will supply a portion of CHH’s paperboard requirements from its mills in the U.S. At the same time, Riverwood will continue supporting its multiple packaging systems in the local beverage industry and CHH will supply Riverwood’s carton needs in the beverage market.
The acquisition of Riverwood’s carton business will strengthen CHH’s packaging operations in Australia and New Zealand, said Doug McKay, chief executive of CHH Packaging.
Sonoco acquires French paper assets
Sonoco Products Co. has acquired 100% of the outstanding shares of Rochette-Alsace SA from the La Rochette group of France. Rochette-Alsace produces industrial packaging and corrugated materials at a paper mill near Paris, in Schweighouse-sur-Moder, which has annual production capacity of 60,000 mtpy. A subsidiary, Sofratube, operates four converting plants that produce industrial paper, tubes, and cores. These operations account for approximately $50 million in annual sales and employ more than 260 people. Sonoco currently has European tube and core converting operations in France, Belgium, and Germany. It has also formed alliances with local manufacturers in Greece and Italy.
Sonoco, headquartered in Hartsville, S.C., is the world’s leading manufacturer of tubes and cores and other industrial and consumer packaging products. The Rochette-Alsace acquisition gives Sonoco additional tube and core manufacturing capacity in France as well as additional paper mill support, said Peter Browning, president and COO.
KNP Leykam cancels project with APRIL
European paper producer KNP Leykam has canceled a joint venture project with Indonesian pulp and paper group Asia Pacific Resources International Holdings Ltd. (APRIL) to produce coated fine paper at APRIL’s Changshu mill near Shanghai in eastern China. KNP Leykam planned to transfer two paper machines and an off-machine coater from its paper mill in Gratkorn, Austria, following the startup of a new 470,000 mtpy paper machine at Gratkorn last November. The two machines, with combined production capacity of 140,000 mtpy, were to be shut down at the end of 1998 and the end of 1999, respectively, and shipped to China.
The China Star project was seriously jeopardized by the alliance APRIL formed last year with UPM-Kymmene Corp. of Finland, one of KNP Leykam’s major competitors. UPM-Kymmene said it would invest $325 million in APRIL’s A.P. Suzhou fine paper mill under construction in China, including a $121 million loan to the project. As a result of the deal, UPM-Kymmene will own 49% of the mill’s equity. The financing gives APRIL critical support in continuing its investments in China and Indonesia.
UPM and APRIL first announced their strategic alliance in September. The noncash transaction calls for each to swap 30% of their fine paper operations.
The sale of KNP Leykam to Sappi Ltd. of South Africa late last year also affected the China Star project. The alliance of APRIL and UPM-Kymmene made it "impossible to continue with the project,” said a KNP Leykam spokesman.
Leykam will shut down the No. 8 machine at Gratkorn by June of this year and the No. 10 machine will be closed sometime this summer. The two machines have combined annual capacity of 140,000 mtpy. The early closures will generate significant cost savings at the mill, and form part of Sappi’s rigorous reorganization plan for its coated paper mills in Europe.
In addition, discussions are ongoing with several southeast Asian KNP companies on the sale of a third paper machine (No. 6, shut down in February 1997) at the Gratkorn mill to be replaced by the new 470,000-mtpy No. 11 machine. A fourth machine (No. 7, shut down at the end of June 1997) has already been sold, dismantled, and shipped to the Gaotang mill in Shangdong province in China.
IP completes Kwidzyn, Poland, mill upgrade
International Paper Co. has recently restarted the No. 4 board machine at its Kwidzyn mill in Poland. The machine upgrade, raising production capacity of cartonboard from 100,000 mtpy to 130,000 mtpy, marks the final stage of a five-year investment program at the mill, which IP acquired in 1992. The investment program cost approximately $175 million in total.
The mill operates four paper machines. The No. 1 and No. 2 machines produce about 270,000 mtpy of uncoated free-sheet papers; No. 3 produces 85,000 mtpy of newsprint; and No. 4 can now produce 130,000 mtpy of coated folding cartonboard, white-lined chipboard, and liquid packaging board in basis weights ranging from 200 to 450 g/m2. The No. 4 rebuild was carried out by Valmet Paper Machinery Inc. of Finland. This was the second rebuild of the No. 4 unit. Voith Sulzer Paper Technology was the main supplier for the rebuild in 1996, which added a new headbox, top wire former, and coaters.
Political fight over forestry, logging
Forestry and logging issues took center stage in Washington D.C. recently after U.S. Forest Service Chief Mike Dombeck outlined the president’s aggressive agenda to preserve federal forests, while a key House committee approved major legislation on forest health and sent it to the House floor.
Dombeck announced the administration’s policy by saying conservation is not a special interest but "a national priority.” The proposal calls for reduced logging, particularly in uncharted areas, and reduced road building, while attempting to strengthen habitat protection and recreational services. Dombeck was one of several federal officials to testify before the House Agriculture Committee looking at the just-approved forest health legislation, sponsored by committee chairman Rep. Bob Smith (R-Ore.) and generally backed by the forest and paper industry. The bill is the first major legislation on forestry and logging issues to make it to the House floor for a vote.
Smith’s forest health bill—whose backers say is necessary to clear forests of dead and dying timber that could fuel catastrophic fires—requires the secretary of agriculture to designate special areas for forest health projects ranging from cutting overstocked stands of trees to intentionally setting small fires to help clear underbrush. It also allows citizens to petition for designation of such areas, and it would tap an existing roads and trails fund to finance the Forest Service projects, expected to cost millions of dollars a year.
Environmentalists have indicated the forest health bill may represent the biggest political battle in Congress this year, an election year that prompts many legislators to seize—one way or another—on controversial issues such as logging. The forestry/logging issue, however, has already been earmarked for controversy in the wake of the Clinton administration’s Jan. 22 proposal to impose an 18-month moratorium on all new road building in federal forests.
Taiwan to cut tariffs on paper, wood
Taiwan has agreed to eliminate all paper tariffs and most wood tariffs by 2002, as part of an agreement reached with the U.S. Trade Representative. The agreement was reached as part of Taiwan’s effort to join the World Trade Organization. Taiwan also formally agreed to support the Forest Products Initiative in the Asia Pacific Economic Cooperation forum (APEC). The U.S., Canada, New Zealand, and Indonesia created a coalition committed to eliminating trade barriers in the paper and forest products industry throughout the Pacific region.
"We believe the best way for our industry to compete internationally is to ensure that we have a level playing field in all markets,” said W. Henson Moore, president and CEO of the American Forest & Paper Assn., in hailing the action. "Taiwan’s commitment to work in support of the APEC Forest Products Initiative marks a substantial contribution to the region’s economic recovery.”
In remarks before the House Ways and Means Subcommittee on Trade, Moore urged other countries such as Japan and Korea to open their economies. He said "protective tariffs, nontariff barriers, collusive business practices and state trading” all contributed to the Asian financial crisis. "There can be no meaningful, sustainable recovery in the region unless and until these are rooted out.”
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