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NEWS SCAN
Domtar acquires Eddy operation from Weston
After two years of getting its financial house in order and refining its focus, Domtar Inc. in June announced a major acquisition-a definitive agreement to buy E. B. Eddy Ltd. Eddy is a wholly owned subsidiary of George Weston Ltd., a Toronto-based food, paper, and natural resources conglomerate. The purchase announcement supersedes Weston's plan to spin off Eddy in an initial public offering which was hoped would raise up to C$1 billion.
The purchase price includes C$435 million in cash and C$368 million in newly issued Domtar common shares. The deal was subject to regulatory approvals. Following the purchase, Domtar will have about 8,000 employees, up from 4,700 currently.
With headquarters in Ottawa, Eddy is an integrated paper and wood products company with annual sales in 1997 of C$956 million and profits of C$55.3 million. With the closing of the transaction, Domtar becomes Canada's leading manufacturer of free-sheet (fine) papers and the seventh-largest in North America. It also boosts Domtar's position in specialty and technical papers, and in lumber making.
Domtar chief executive Raymond Royer noted that Domtar and Eddy's operations, product lines, and distribution networks are complementary, and that the deal is expected to create at least C$30 million in operating synergies annually, or between 1% and 3% of sales. Domtar had sales of C$1.9 billion in 1997.
In paper, Eddy manufactures coated and uncoated free-sheet printing; lightweight and heavy weight opaque book and cover; and medical, technical, and food packaging. In solid wood, it has five sawmills that make 457 million bd ft of lumber and 81 million ft2 of engineered wood panels. It also sells about 140,000 metric tons of market pulp annually and has a 50% interest in the Blue Water Fiber L.P. deinking mill.
Eddy has four pulp and paper mills with a total capacity of 485,000 tpy. Three s-p-f sawmills are all located in northern Ontario in Nairn Centre, Timmins, and Elk Lake, as well as Agawa Forest Products, a lumber and panel manufacturing facility in Sault Ste. Marie. The Blue Water deinked pulp facility, with capacity of 72,000 metric tons, is located in Port Huron, Mich.
Most analysts said the deal is a good fit with Domtar, which focuses on free-sheet office and printing paper (a total of 760,000 tpy at three mills in Ontario and Quebec), wood products (750 million bd ft), and packaging-a 50% interest in Norampac, a joint venture with Cascades Inc.
Adding Eddy's product lines will raise the share of Domtar's specialty papers to 53% from 23%; it currently produces about 46,000 tons of specialty grades such as security papers at the St. Catharines, Ont., mill.
The transaction will be financed with a C$525 million credit facility. It raises Domtar's net debt-to-total capitalization ratio to 41% from 31%. That is still below its 45% target, Royer said, leaving the company free to look at other acquisitions. n
IP buys Zellerbach merchant from Mead
Due to financial struggles, Mead Corp. has recently agreed to sell its low-margin Zellerbach Distribution Div. to International Paper Co.'s xpedx. The transaction, which was expected to be finalized in late July, is valued at about $263 million.
Zellerbach will be combined with xpedx, creating a $5.9 billion company, second in size to Unisource Worldwide Inc. Xpedx, Covington, Ky., is the former ResourceNet International and is headed by Thomas E. Costello.
Zellerbach lost money for Mead in 1997 and the first quarter of 1998, according to analyst estimates. It has annual sales of about $1.6 billion and employs about 2,000 people.
Peter Vogel, president of Zellerbach, said the business did not fit Mead's strategy of focusing on coated and specialty paper, packaging, and school and office supplies. "Mead continues to look at the consolidations and challenges in the industry in distribution and manufacturing, and Zellerbach's long-term success and future depended on finding an appropriate partner," he said.
Zellerbach's sales volume declined in the first half of 1997. In response, the division beefed up its sales force, which resulted in some improvement in the third and fourth quarters. Pre-tax profits for the school office products and distribution unit in 1997 were reported as $38.7 million, down 44% due to lower results for Zellerbach.
Xpedx has annual sales of $4.3 billion in the U.S. and Mexico and operates more than 200 wholesale facilities and stores that distribute printing, packaging, industrial, and graphic arts supplies. The business has been growing and IP believes Zellerbach will eventually add $50 million a year to operating income.
The company plans to look for opportunities to reduce costs while offering customers a deeper selection of products, and one estimate put the number of jobs that could be eliminated at as many as 1,000. Zellerbach has 31 distribution centers and 41 PressStock printer supply centers.
After announcing the sale of its distribution business to IP, Mead said it would sell other non-strategic assets. They include Mead Ink Products; a hardwood sawmill in South Range, Mich., and 50,000 acres of surrounding timberlands; undeveloped mill sites in Tennessee, Kentucky, and Michigan; and real estate in San Francisco and Dayton, Ohio. Proceeds are expected to be in excess of $100 million, according to the company.
Mead will also combine its Fine Paper and Publishing Paper divisions, which encompass mills in Escanaba, Mich., Rumford, Maine, and Chillicothe, Ohio, into one coated paper operation. The restructuring, expected to be complete in 1999, will result in a cut of 5% or about 250 jobs among salaried employees, not including those with Zellerbach Distribution. Mead has 16,600 employees, about 5,000 of whom are salaried. In addition, implementation of new software companywide is expected to cause 5% more jobs to be slashed over the next two years. n
Alliance to build new paper machine
In a bit of a turnaround from previous plans, Alliance Forest Products Inc. said it will build a new paper machine at its Donnacona, Que., mill-the only printing/writing installation in Canada announced this year. The new C$275 million machine-to start up in 2000-would make soft-nip calendered groundwood printing papers. Capacity would be 167,500 tpy (152,000 mtpy).
Originally the company planned a rebuild of the No. 3 machine that makes high-bright groundwood specialties and newsprint. Under the new scenario, No. 3 will get some modifications and two older machines, Nos. 1 and 2, will be shut down.
The product mix will be altered to all groundwood specialties. Currently No. 3's production-capacity of 88,000 tpy (80,000 mtpy)-is 60% uncoated groundwood book paper and 40% newsprint (for commercial printing). CEO Pierre Monahan said the newsprint production would be shifted to the Coosa Pines, Ala., mill acquired from Kimberly-Clark Corp. last year. Nos. 1 and 2, which each have 46,000 tpy (45,000 mtpy) capacity, make paperback book paper.
The new machine, to be called No. 4, would have the capacity to make what Monahan called "the lower spectrum of SC-A" as well as SC-B offset and rotogravure printing papers. The 234-in.-wide machine would have a soft-nip calender.
Monahan said it would complement the No. 5 machine at the Dolbeau, Que., mill, which makes SC-B and SC-B+ grades. "We will be in a position to produce a large range of uncoated groundwood printing papers and to adapt easily to market changes," he said. Alliance has been moving toward higher-grade uncoated groundwood papers at the Donnacona mill.
The project will be financed from cash and credit facilities and is being supported by the Societe de development industriel du Quebec, which is providing financing incentives of C$35.8 million.n
Grande Alberta finds new LWC mill site
Grande Alberta Paper Ltd., which is proposing to build a greenfield coated groundwood mill in Alberta, said it will relocate the mill to a site that would have less impact on the environment. The Edmonton-based company has chosen a new location for the C$900 million paper mill in a former gravel pit about six kilometers south of Grande Prairie, Alta. The new site is near a Weyerhaeuser Canada Ltd. kraft pulp mill. "Strong public opinion suggests a preference for Grande Alberta Paper to locate in close proximity to other forest industry operations," according to a press release.
In addition, the company said it has submitted the next round of documents to Alberta government authorities as part of the environmental assessment process. Daishowa-Marubeni International Ltd. in May put its LWC project in Alberta on hold.
The mill would have one paper machine with capacity to produce 350,000 to 400,000 tpy of lightweight coated groundwood publication paper. It would be the only coated paper mill in Alberta. n
No coated groundwood increase
An expected July 1 price increase on coated groundwood did not occur after the one manufacturer, Repap Enterprises Inc., rescinded its 5% increase announced in May. No other producers had made similar announcements. While inventory levels are below the high levels reached in 1996, they had been rising all year. In addition, summer is normally a slow time for catalogers. There was also some concern that the startup of the Stora SC-A machine in Canada could affect the market. n
Blandin mill to eliminate 120 jobs
Lightweight coated groundwood producer Blandin Paper Co. said it will eliminate 120 jobs from its 980-member workforce in the next 18 months. The action will include 40 salaried jobs as well as those filled by union employees. A manager said the downsizing will be done as much as possible through retirements. The restructuring-the second since 1995-is designed to make the mill profitable. n
Weyco upgrades Canadian pulp mill
Weyerhaeuser Canada Ltd. will invest C$315 million over the next two years to upgrade its Prince Albert, Sask., uncoated free-sheet and market bleached kraft pulp mill. A new recovery boiler will be installed to replace the original recovery boiler installed when the mill opened in 1968. The old recovery boiler will be converted to a hog fuel power boiler, which will allow the mill to produce almost all of the electricity it needs while eliminating landfilling of woodfiber. Woodwaste will be supplied from onsite operations as well as an existing stockpile. Natural gas consumption will be reduced by 80%.
The improvements will bring air emissions of the mill into compliance with provincial and federal regulations. The company is also investing an additional C$28 million for a new landfill and concentrated noncondensable gases/steam stripper projects that are currently ongoing. Completion of all projects is expected in 2000. n
Cascades acquires Auburn MDIP mill
Cascades Inc. in Quebec has bought Auburn Fiber, the market deinked pulp (MDIP) mill in Auburn, Maine. Cascades declined to reveal the purchase price of the 75,000 mtpy mill, but described it as "substantially lower" than its $70 million construction cost in 1995. Auburn Fiber's most recent owner has been AT&T Capital Corp., which acquired it through a $20 million write-off from Stone & Webster Inc. in lieu of foreclosure. Cascades expected to close the transaction in June, subject to regulatory and other approvals.
Cascades president and CEO Laurent Lemaire said in a company statement: "This acquisition fits well with our plans to expand further in the U.S. and increase our vertical integration. With its state-of-the-art equipment, the plant produces a pulp with a high level of brightness which can rival the virgin pulp, particularly used by manufacturers of fine papers or tissue paper."
Cascades hopes to get the mill running at capacity of 80,000 mtpy through operational improvements. It is now only running 10 to 15 days a month. The mill now makes wet-lap kraft recycled pulp for use in fine (free-sheet) and specialty paper.
The company said it would use some of the Auburn mill's output for its Perkins Papers Ltd. tissue and Rolland Inc. fine papers subsidiaries. But "at least" 80% will be sold on the open market, according to Rina McGuire, an official with Cascade's Desencrage C.M.D. subsidiary.
The Auburn acquisition brings Cascades' total deinking capacity to 375,000 mtpy in nine units. The mill started up in October 1995 as Auburn Virgin Pulp Substitute L.P., but has been running only about a quarter of the time for about two years. One key customer has been S.D. Warren Co.'s mill in nearby Westbrook, Maine. n
Fort James expands microwave packaging
Fort James Corp. has acquired the equipment and intellectual property assets of Beckett Technologies Corp., a Canadian company that develops proprietary processes for the design and manufacture of microwave packaging components. Fort James, the market leader in microwave packaging systems, made the purchase from a bankruptcy court after Beckett Technologies went into receivership. The terms of the transaction were not disclosed, but the purchase was made for less than $10 million, said a spokesman for Fort James.
Under the agreement, Fort James will acquire Beckett's metallized foil composite technologies and a production facility located in Mississauga, Ont. The Mississauga plant resumed operation in July. In 1986, Beckett granted Fort James license rights to its patented MicroRite technology, and Fort James granted rights to Beckett to make and sell microwave packaging that incorporated its patented metallized film susceptor technology. MicroRite joins Qwik Crisp, Qwik Check, Microflex Q, and other packaging innovations in Ft. James' Qwik Wave group of microwave packaging products that facilitate browning and crisping of pizza, french fries, popcorn, and other foods.
Green Bay Packaging's folding carton division in Green Bay, Wis., has been awarded ISO 9001 quality systems registration. The company has seven additional facilities registered to ISO 9000.
Graphic Packaging Corp. announced plans to build a new, highly automated folding carton manufacturing facility in Golden, Colo. Estimated costs are $35 million for the 200,000 ft2 facility. Graphic Pkg. operates 16 plants in the U.S. and Canada and is the largest independent supplier of folding cartons in North America. n
Greenfield tissue mill proposed
Plans are being developed to construct a 70,000 tpy deinked pulp mill and tissue machine at a greenfield site in Omaha, Neb., to be called Firstar Fiber Inc. The $130 million project is being developed by New Horizon Inc., of Granby, Conn. A conceptual engineering study has been completed, and the company is currently raising funds to complete a definitive engineering study. The mill would produce parent rolls of tissue and toweling for the commercial market on a single machine. The current timetable is for the mill to begin production in 2001.
Plainwell Tissue, a maker of private label consumer tissue, installed an interfold facial tissue machine at its Pittston, Pa., converting plant. The new $4 million line allows the company to manufacture tissue in larger sheet counts. n
L-P settles fine, sells siding business
Louisiana-Pacific Corp. recently closed a lengthy chapter in its history when it agreed to pay a $37 million fine over violations of the Clean Air Act at its Montrose, Colo., facility. L-P reached the agreement with the U.S. attorney's office in Denver on charges related to acts committed four to seven years ago, including air emissions violations, tampering with emissions monitoring equipment, and false statements, the company said.
L-P's environmental headaches at Montrose-which manufactures floorboards and siding-began in the 1980s and culminated in 1995 when L-P was indicted on 56 counts of violating the Clean Air Act, according to a company spokesman.
Included in the penalty is a $500,000 donation split between seven Colorado-based programs that address air pollution reduction or remediation. In addition, the company was placed on probation for five years. To cover costs, the company said it will take a $14 million charge against second-quarter earnings.
L-P also sold its fiber cement roofing products manufacturing operations to Sybex Inc. of Auburn, Wash., and Surrey, B.C. The business consists of one manufacturing facility, along with research, customer support, and sales activities, in Red Bluff, Calif. n
Crown shuts B.C. boxboard machine
Crown Packaging Enterprises Ltd. said it planned to shut down a coated boxboard machine at its Burnaby, B.C., paper mill in July because of the machine's high production costs, lack of demand for its products, and quality control problems which are creating operating losses. Since 1995, the company has made substantial capital expenditures to give the No. 4 paper machine increased capabilities to produce coated recycled board for folding cartons and other products. Although product quality has improved, additional capital investments or cost savings are required to permit the machine to operate profitably, said the company.
Crown issued layoff notices to 82 unionized workers and 15 staff employees on May 21, said Gunther Winter, president of CEP local 1129. The layoffs will cut the Burnaby mill's workforce to about 187. Crown said it would be required to take a charge up to $20 million against earnings, probably in the third quarter, plus an additional $3 million for severance costs.
Crown purchased the Burnaby mill and other converting and recycling operations from Paperboard Industries Corp. in 1993. The Burnaby mill, built in 1957, manufactures various grades of 100% recycled paperboard on three paper machines. The mill's products include containerboard, boxboard, gypsum wallboard facing paper, and tube and core stock.
Canadian capital budgets drop again in '98
Spending for plant, property, and equipment by Canadian pulp and paper companies for fiscal year 1998 is forecast to decrease for a third consecutive year. A Pulp & Paper Project Report tally of spending plans of 20 companies forecasts a decrease of over 10% to fall to an estimated C$2.1 billion. This contrasts with the forecasted 2.5% increase in capital spending in 1998 by U.S. companies tallied by Project Report.
This follows a spending drop of almost 26% in 1997 from 1996. Spending by Canadian companies has fallen each year since the most recent peak of almost C$3.5 billion in 1995. Projected spending for 1998 is down about 40% from the 1995 peak.
Abitibi-Consolidated Inc. once again leads the Canadian pack with projected 1998 spending of C$330 million, down more than C$100 million from 1997. Like many of its U.S. counterparts, the company plans to limit its capital expenditures over the next three years to no more than its depreciation and amortization expenses. The company recently announced a C$128 million project for its Kenogami division in Jonquiere, Que., and is investing C$50 million at its uncoated groundwood papers mill in Beaupre, Que.
Noranda Forest Inc. is expected to spend approximately C$225 million in 1998, an increase of 25% from actual 1997 spending. About half of the spending is slated for projects already approved and underway, including the expansion of the medium density fiberboard (MDF) capacity at the Cowie facility in Scotland; scanning and control equipment for four paper machines at the Edmundston-Madawaska, Maine, complex; and the completion of the new multi-fuel boiler project at West Carrollton, Ohio.
Rounding out the top five spenders are Alliance Forest Products Inc., Cascades Inc., and West Fraser Timber Ltd., which are each expected to spend around C$150 million for capital expenditures in fiscal 1998. Alliance recently announced that it will install a new paper machine at its mill in Donnacona, Que., at a total construction cost of C$240 million.
Cascades and its various subsidiaries (Paperboard Industries International Inc., Rolland Inc., and Perkins Papers Ltd.) are also expected to spend about C$150 million in 1998. Cascades and Domtar Inc. merged their containerboard operations to form Norampac Inc., an equal joint venture. Paperboard Industries is investing C$19 million as a major partner in the reopening of the FjordCell Inc. bleached kraft pulp mill in Jonquiere, Que., this year. Perkins Papers is in the midst of a three year C$120 million spending program and is expected to spend about C$36 million in 1998 for improvements at a number of its tissue mills.
West Fraser will also spend an estimated C$150 million in 1998. Approximately C$35 million is slated for projects in progress at the end of 1997. A new press is to be installed on the linerboard machine at Eurocan Pulp & Paper Co. in Kitimat, B.C.
Canfor restructures for profitability
In its quest to return to profitability, Canfor Corp. is "cutting out the fat" and planning to do business in new ways. In its recently outlined restructuring plan, Canfor is first focusing on efficiencies aimed at reducing costs. The longer-range plan is expected to involve new alliances, but pulp and paper will continue to be a key element of the Vancouver, B.C., company.
The company took the first move of its restructuring by cutting the jobs of 250-or 20%-of the 5,000 salaried employees. David Emerson, who was named president and chief executive last fall, initiated the review and restructuring. Emerson said several months ago that the company had to cut its cost base by C$30 million to C$40 million by year's end. Canfor's before-tax losses in 1997 and 1996, respectively, were C$34.3 million and C$30.5 million.
Emerson said Canfor's businesses must either become high performers on international terms or join forces with others. He said the company's capital spending will be "strictly disciplined," with a minimum goal of 18% return on capital employed annually before tax, representing its cost of capital.
Canfor will reorganize into three divisions: Pulp & Paper Products, Northern Wood Products, and Coastal Wood Products. Each business group has developed a five-year plan aimed at making itself profitable and each is to be established like a stand-alone business.
Canfor plans to grow its paper business by transforming it into a specialty kraft operation. It will spend C$8 million in the coming year to upgrade the paper machine at its Prince George, B.C., pulp and paper mill to produce high-performance sack kraft paper and increase bleached paper production. As a second phase, Canfor plans to expand the paper machine output to 500 mtpd from 300 mtpd. The company said that at the 780 mtpd Intercontinental NBSK pulp mill, also in Prince George, it has identified "a number of high-return projects" aimed at making the mill globally competitive.
On Canfor's wood side, the divisional changes reflect the permanent closure last December of Canfor's Eburne Sawmill Div. in south Vancouver, B.C. The company said it has taken steps to ensure that there will be enough fiber supply at its coastal Howe Sound, B.C., mill. It said it has secured fiber supply there through sawlog trades with companies on the coast. The company's coastal fiber assets will refocus on fiber management, including forestry, logging, merchandising, and some primary processing. Emerson said the Coastal Wood Products Group would review partnership possibilities with a "strong wood products processing partner as a way to create additional value, and to stretch our fibre supply."
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