NEWS SCAN

Valmet and Rauma to merge

Valmet Corp. and Rauma Corp. announced a merger that will form by far the world’s largest supplier of pulp and paper equipment. The new company, Valmet-Rauma, will be a global market leader in all its main product groups, supplying equipment spanning the entire forest products process industry, from forest harvesting to paper and board converting, the companies report. Valmet is the world’s largest supplier of a wide range of products for the paper industry, notably paper machines, coaters and finishing equipment such as calenders and winders. Valmet delivered 11 new paper machines in both 1997 and 1996.

Rauma produces a wide array of products and is organized around four major divisions. The largest division is the pulp mill equipment producer Sunds Defibrator. Based on 1997 data, about 35% of Sunds’ sales were derived from chemical pulping processes and 19% from mechanical pulping. Others divisions are Neles Controls (valves and flow control systems), Timberjack (forest harvesting) and Nordberg (rock crushing).

The merger will create a company with combined 1997 sales of $4.2 billion (FIM 23 billion), an operating profit of $311 million (FIM 1.7 billion) and a combined 23,496 employees. Completion of the merger is expected to be in June 1999. The merger is expected to save an estimated FIM 400 million annually, which will be fully realized beginning in 2001. The new company’s Chairman of the Board will be Pertti Voutilainen. Matti Sundberg, CEO of Valmet, will be the CEO of the new company. Heikki Hakala, CEO of Rauma Corp, will be president.

This is the latest in a series of mergers and acquisitions that are changing the producer and supplier sides of the paper industry. Earlier in the fall, the merger of Hercules and BetzDearborn radically changed the specialty chemical area.

Merger creates paper, board powerhouse

In a pre-Thanksgiving announcement, International Paper Co. and Union Camp Corp. said they will merge in a stock swap valued at $6.6 billion, including assumption of debt. The deal values Union Camp at $71/share. International Paper shareholders would own 75% of the combined company, while Union Camp shareholders would own the other 25%. The transaction is expected to close at the end of the first quarter.

The merger is expected to result in $300 million in cost savings from a combined company that would have about 100,000 employees. About $200 million will come from reductions in overhead through combining corporate and business staffs, about $35 million in general purchasing and logistics savings, and about $65 million in process improvement and facility rationalization.

The new company (the Union Camp name will disappear) would rank as the second-largest North American and world containerboard producer controlling 4.58 million tpy of capacity (about 13% in the U.S.), behind the newly formed Smurfit-Stone Container Corp’s 5.7 million tpy. IP is already North America’s leading producer of uncoated free-sheet with 2.3 million tons of annual capacity and Union Camp ranks seventh with 1.2 million tpy. The combination would make an uncoated free-sheet powerhouse with about 8% of global capacity and 22% of North America.

Overall, the new IP would have an estimated annual capacity of about 12.6 million tons of paper and paperboard in North America, in addition to IP’s offshore capacity of 2.8 million tpy. It would have about 1.2 million tpy of market pulp, of which Union Camp would add only 135,000 tons. IP will also gain Union Camp’s 1.6 million acres of southern timberland, reportedly some of the best in the U.S.

Currently, in North America IP holds less than 15% of capacity in the 16 million tpy uncoated free-sheet market. Union Camp operates two large uncoated free-sheet paper mills in Eastover, S.C., and Franklin, Va., while IP has eight paper mills in the South and Northeast. Both companies have been pioneers in creating branded copy paper for offices. It is unclear whether the Union Camp Great White name will remain; IP’s well-known brand is Hammermill.

IP adds significant linerboard capacity from Union Camp, which does not make corrugating medium. It produces liner at Prattville, Ala., (980,000 tpy) and Savannah, Ga. (865,000 tpy). IP makes liner at five mills in four southern states and one mill on the East Coast. The large 350,000 tpy Gardiner, Ore., mill is slated for an indefinite shutdown starting this month.

IP said in November it would eliminate about 800 jobs by the end of 1998. The reorganization involves moving and closing some sheeting operations at printing/writing paper mills. The affected mills and the number of job cuts are Mobile, Ala., 450; Bastrop, La., 100; Ticonderoga, N.Y., 170; Lock Haven, Pa., 30; and Selma, Ala., 50. “As a result of these changes, each mill will focus on fewer market segments and some sheeting operations will be moved closer to customer locations, resulting in a more responsive system,” said Bill Slowikowski, senior vice president of printing papers. The move is part of IP’s previously announced cost-cutting effort that will eventually cut 1,500 jobs or 2% of its workforce.

A spokeswoman said the Mobile mill sheeting operations will be closed, and that mill will no longer make cut-size office paper or commercial printing grades. The new product mix includes envelope, business form, tablet and some kraft paper. The Ticonderoga mill, which now makes both office and uncoated free-sheet printing papers, will solely be focused on the latter. Lock Haven and Selma will primarily be devoted to office paper production under the Hammermill division.

Smurfit-Stone merger cuts 1 million tons

In a much-anticipated move heralded by Wall Street analysts and paper industry executives, the new Smurfit-Stone Container Corp. announced aggressive plans for shutting down and mothballing 1.15 million tons or 16% of its containerboard capacity. The company also plans on shutting down 400,000 tons of market pulp capacity at two plants.

The announcement came five days after shareholders from Jefferson Smurfit Corp. (JSC) and Stone Container Corp. approved the merger of the two companies into Smurfit-Stone, the largest containerboard and packaging producer in the world.

Smurfit-Stone plans to shut corrugating medium mills at Alton, Ill., and Circleville, Ohio; kraft linerboard mills at Port Wentworth, Ga., and Jacksonville, Fla.; and market pulp operations at Port Wentworth and at Bathurst, N.B.

The merger was approved Nov. 17 by 95% of JSC common shareholders and by 85% of Stone Container’s. In the stock swap, Stone Container stockholders traded one share for 0.99/share of JSC common stock, with the equity valued at $2.5 billion. The company put the enterprise value of the combined company at $9 billion, including $6.5 billion of debt.

The meshing of the No. 1 and No. 6 U.S. containerboard producers creates a potential powerhouse company that expects to generate $8.4 billion in sales in 1999 from containerboard, corrugated containers, folding cartons, industrial bags, recycled paperboard, and newsprint, based on estimates. In containerboard, its strongest segment, the company has 8.3% of world capacity and 20% of U.S. capacity. With 34 mills in the U.S. and Canada, Smurfit-Stone Container has linerboard capacity of 5.48 million tons, corrugating medium capacity of 1.8 million tons, market pulp capacity of 970,000 tons, boxboard capacity of 656,000 tons, newsprint capacity of 630,000 tons, kraft paper capacity of 450,000 tons, and cylinder board capacity of 128,000 tons. The company makes 75 billion ft² of packaging products at 135 plants.

Simpson changes mix at Texas mill

A Simpson Paper Co. mill in Pasadena, Texas, that is in the process of being sold to Belgravia Paper Co., Vancouver, B.C., will operate with a severely reduced workforce upon closing of the sale, expected Jan. 13. In addition, uncoated free-sheet and market pulp operations are being closed. The workforce at the San Jacinto mill will be cut from 650 employees to about 300, said John Cowan, a vice president of Belgravia who is overseeing the transition in Texas. Uncoated free-sheet papermaking—about 130 tpd—will be phased out permanently and the focus will be on coated sheet and web and label papers. Capacity at the two-machine mill will be reduced to 170,000 tpy from about 200,000.

The integrated mill now has capacity to make about 100,000 tons of market pulp. Cowan said the pulp operations will be mothballed due to poor market economics. “Market conditions just don’t justify” the uncoated free-sheet and pulp operations, he said. “We are excited about moving forward with due diligence and closing the sale and focusing on the coated paper business.” Belgravia is naming the division Pasadena Paper Co.

Caraustar, Boxall to merge cartons

Caraustar Industries Inc. and Boxall Inc. announced a definitive merger agreement, continuing Caraustar’s expansion into high-growth niche markets in the folding carton industry. Boxall supplies folding cartons for pharmaceuticals and other specialty markets and had 1997 revenues of $4.5 million. Boxall operates a carton manufacturing facility located in Birmingham, Ala., which features modern flexographic printing technology.

Jim Walden, vice president of Caraustar’s carton and custom packaging division, said Boxall will operate as a wholly owned subsidiary and will be part of the company’s newly formed specialty packaging group, offering a single source of services to pharmaceutical, nutrition, health foods and other quality control customers.

Caraustar currently produces folding cartons and rigid set-up boxes at 10 manufacturing facilities located in the Northeast, Mid-Atlantic and Southeast. Its most recent folding carton acquisitions were Oak Tree Packaging Corp. in August 1997 and Chesapeake Fiber Packaging Corp. in spring 1998.

Rock-Tenn to close laminating plant

Rock-Tenn Co. said it plans to close its laminated paperboard products converting plant located in Otsego, Mich., and consolidate the business into its other laminated products plants. The closing is expected to be complete by the end of February. The Otsego converting plant primarily manufactures heavyweight coverboard for hardbound books, notebooks and binders. The plant closing will not affect the operation of Rock-Tenn’s Otsego recycled paperboard mill, the company said.

Rock-Tenn previously announced it was reviewing certain cost reduction initiatives and that it expected to incur $3.5 million in nonrecurring charges for severance and relocation costs during the 1999 fiscal year. The Otsego plant closing and the previously announced closing of the Taylorsville, N.C., folding carton facility will account for approximately $2.8 million of these costs. The relocation of these operations is expected to result in increased manufacturing efficiencies and reduced overhead costs, the company said.

Shorewood acquires Queens Group

Shorewood Packaging Corp. has completed the purchase of Queens Group Inc. and certain of its affiliates. The purchase price of approximately $129 million was financed with cash and the issuance of Shorewood common stock. Both Shorewood and Queens Group are based in New York and produce high-quality printed cartons, labels, and boxes for customers in the music, home entertainment, and multi-media markets, as well as general consumer packaging. Queens Group owns and operates five manufacturing facilities in the U.S., employing approximately 1,000 people. Its folding carton plants are located in Indianapolis, Ind., and Stanley, N.C. (near Charlotte) and commercial printing plants are located in New York, Edison, N.J., and Louisville, Ky. In 1998, the company started up a new seven-color Mitsubishi sheetfed press with tower coated at the Indianapolis site. In its latest fiscal year, Queens Group reported revenues in excess of $148 million.

Weyco tables pulp expansion

Weyerhaeuser Co. is no longer considering expanding market pulp capacity in the near future, including in the Southern Hemisphere, where it had been looking at opportunities. The company is instead focusing on four strategic (non-pulp) areas: fine paper, container/packaging, timberlands, and wood products. Weyerhaeuser is the world’s largest producer of market pulp, with 2.17 million mtpy.

The company had looked at pulp growth in the recent past, but had not found the right match regarding price or facility, spokesperson Bruce Amundson said. He said the company is now narrowing earlier overall strategic planning efforts, determining growth opportunities and opportunities where the investment of capital makes sense. “Given the current market conditions and the market conditions in the near future and the next five years or so, (Weyerhaeuser) thinks the opportunities are elsewhere,” he said. “Right now there are no plans to do anything with pulp.”

Weyerhaeuser president and CEO Steve Rogel said the company would increase pulp output from its existing facilities by 1.5% to 2% annually over the next five years, mainly through process improvements. He also said Weyerhaeuser plans to reduce its exposure to commodity grades by 25%, partner with customers in product development opportunities, supply incremental requirements to fine paper, and create product differentiation through “tightly focused” research and development activities.

Canfor CEO wants to consolidate pulp

Canfor Corp. is seeking a partner with which to fuse its pulp business. President and CEO David L. Emerson told Dow Jones in November that Canfor wants to be a part of a proposed network of Canadian producers which would split off their British Columbia pulp assets into one company. The plan, dubbed “Pulp Co.,” has been unfolding for several months. Economically strapped British Columbia has more pulp capacity than demand, and the plan could force some permanent shuts among weaker players.

Emerson also said that Canfor is planning “rationalization” at the heavily indebted Howe Sound Pulp & Paper Ltd. in Port Mellon, which it jointly owns with Oji Paper Co. of Japan. “With Howe Sound we have to drag a C$30 million loss through our income statement,” he said. “Clearly a rationalization is needed here and we’re working with Oji on this.”

Maclaren mill sold to investors

Noranda Forest Inc. has sold its subsidiary newsprint mill in Masson-Angers, Que., to Papier Masson Ltée. Sources said the company—comprised of investors including Enron Capital & Trade Resources Corp. of Houston and NLK Consultants Inc. of Vancouver, B.C.—agreed to pay C$145 million plus C$15 million in working capital for the James Maclaren Industries Inc. mill. Noranda had been trying to sell the 213,000 mtpy mill since August 1997. Upon closing of the sale which was expected December 18, Noranda will exit the newsprint market entirely.

As part of the transaction, two of Noranda’s wholly owned subsidiaries—Maclaren-Quebec Power Co. and Norbord Industries Inc.—have entered long-term agreements to supply power and wood chips to the mill. The agreement with Maclaren-Quebec spans 10 years; the chip agreement is for 20 years.

In terms of capital improvements to the mill, a source at Enron said there are plans to replace the mill’s stone groundwood pulp system with a thermomechanical pulp line by the year 2001 in order to reduce production costs.

Most new newsprint PMs in Asia, Europe

Despite the downturn in Asian economies since mid-1997, the Asia/Pacific Rim region is where seven of the expected 13 new newsprint paper machines scheduled for the period 1998-2002 will be installed, according to Pulp & Paper Project Report. European producers would be responsible for four new installations there while North America and Africa are expected to have one new paper machine installation each.

The 13 new machines would add approximately 2.5 million mtons of additional capacity which will be offset somewhat by the concurrent shutdown of smaller machines. Approximately 250,000 metric tons of capacity worldwide would be lost with the shutdown of five smaller newsprint machines. Of the seven new machines being installed in Asia, four began production in the first half of 1998, including two in Japan. Subsequent installations are still slated for Malaysia, China, and India.

The complete article reviewing global newsprint projects, including a three-page table of current projects and a table of proposed projects, is available in the Oct. 27, 1998, issue of Pulp & Paper Project Report. Call Customer Service at (800) 289-0969 for single issue and subscription information.

FiberMark to close small N.Y. mill

Specialty papermaker FiberMark Inc. said it plans to permanently close its Beaver Falls, N.Y., mill in the first quarter. The Beaver Falls mill currently employs about 100 people and produces latex reinforced materials used in book covers, photo albums and related products. It is a lower-cost alternative to genuine leather covers or clothing labels. The mill has one five-cylinder paper machine, one fourdrinier paper machine and a dry web saturator, which in total can produce about 27 tpd.

FiberMark said it would take a $5 million after-tax charge in the fourth quarter of 1998 to cover the cost of closing the mill, but the closure is expected to generate annual cost savings of $1 million beginning this year. “The Beaver Falls facility faced lower demand for its latex materials due to industry consolidation, including the recent purchase of its largest customer by a competitor in the book cover market,” said Alex Kwader, president and CEO. Kwader said production will be shifted to other company facilities, particularly the Fitchburg, Mass., mill, where equipment upgrades have been completed. During first-quarter 1998, FiberMark closed a specialty paper mill located in Owensboro, Ky., which produced decorative book cover stock, saturating base materials for adhesive tape, and technical specialty papers.

AssiDomän to open U.S. coated plant

AssiDomän AB of Sweden plans to open a production facility in Minneapolis, Minn., to manufacture release liners, which are specialty coated papers used as a protective base for pressure-sensitive and self-adhesive materials. The base papers include bleached and unbleached kraft paper coated with silicon. Release liners are used for consumer and industrial packaging labels, product identification tags, decals, billboards, road signs and die-cut products. AssiDomän’s barrier coating division already has customer service and warehousing facilities in Minneapolis, and manufacturing will be set up on the existing premises. Production is expected to begin by mid-year and annual revenues are expected to reach SEK 100 million ($12.5 million) within three years, said the company.

AssiDomän claims to be the world leader in the double-sided, coated release liner market. Production is currently located in Raubling, Germany, which is supplied with kraft paper produced at paper mills within the AssiDomän group. The Minneapolis facility will be AssiDomän’s first production facility located outside Europe.

Consolidated unveils Inter Lake projects

Projects totaling $166 million have been announced by Consolidated Papers Inc. for 1999. The biggest of the projects is a rebuild of the No. 96 paper machine to include a top-wire former at the Inter Lake Papers mill in Kimberly, Wis. The rebuild is designed to enhance the printability of the coated grades manufactured there. The Kimberly mill was acquired from Repap Enterprises Inc. in 1997.

Other major projects include construction of a peroxide bleach plant to replace the existing plant and upgrading an off-machine coater at the Wisconsin River Div. in Whiting, Wis.; addition of a second debarking system at the Biron Div. in Biron, Wis.; and adding a steam turbine generator at the Stevens Point Div. in Stevens Point, Wis.

A news release stated that it expects to eventually spend $200 million on capital projects in 1999. That is below the $245 million budgeted for 1998.

Willamette sells Washington timber

Willamette Industries Inc. said it had signed a letter of intent to sell 117,000 acres of timberlands in Washington state to The Campbell Group for $234 million. Willamette said in a news release that the property is not critical to the fiber supply needs of its Oregon operations. Proceeds will go toward reducing debt. The purchase was expected to be complete by the end of 1998.

In other timber sale news, Plum Creek Timber Co.’s acquisition of 905,00 acres of central Maine timberland for $180 million from Sappi Ltd. has closed. Other major pending timberland sales in the U.S. include Kimberly-Clark Corp.’s 500,000 acres in the South.

Bowater gains $155 million on timber

Bowater Inc. will sell about 656,000 acres of timberland in Maine to McDonald Investment Company Inc. of Birmingham, Ala., for $155 million. Wagner Forest Management Ltd. of Lyme, N.H., is the forest land manager for McDonald. Wagner currently manages about 1.6 million acres of timberland in the U.S. and Canada including 380,000 acres in Maine.

As part of the sale, Bowater and McDonald will enter into an agreement to supply wood fiber from the purchased timberlands to Bowater's Great Northern Paper Co. mills in Millinocket and East Millinocket, Maine.

Completion of the sale, expected in the first quarter, is subject to normal conditions and regulatory approvals. The transaction includes lands that are primarily located in Piscataquis and Somerset counties in western Maine.

Bowater recently announced the sale of 1 million acres of timberlands in northern Maine to J. D. Irving Ltd. for $220 million. The company said that funds from these asset sales will be used for the continued reduction of debt, repurchase of shares and other strategic purposes. Upon completion of both transactions, Bowater will own about 360,000 acres of timberland in Maine.

EPA investigates kraft pulp mills

The U.S. Environmental Protection Agency (EPA) is assessing eight kraft pulp mills in the mid-Atlantic states for possible violations of the Clean Air Act (CAA). EPA’s Region III recently inspected the mills; the agency is expected to conduct similar investigations in other regions. “Our message is that the regulated community needs to be more forthright with what they are doing, and the effect on air emissions,” said David Mcguigan, EPA Region III’s air enforcement branch chief. “They are not adequately reporting to the state permitting agencies prior to beginning construction.”

The impetus for the investigations began as officials noticed that, over the past several years, the industry’s pulp and paper capacity grew disproportionately to applications for EPA construction permits under the Prevention of Significant Deterioration (PSD) program. Region III includes Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia. The EPA has nine other regions throughout the U.S.

A representative of the American Forest & Paper Assn. (AF&PA) said last week that the industry was not aware that it was in non-compliance with the PSD requirements until the EPA began investigating, because “neither the industry nor the states understands this program,” said an AF&PA contact. He explained that the PSD guidance, comprising approximately 4,000 pages, is often “conflicting,” and complained that EPA itself is not consistent with its answers. He said the industry is upset and frustrated by the PSD rules.

While the government has not identified the mills involved, Lockwood-Post’s Directory lists eight pulping operations in mills in Region III which mostly supply integrated paper and board making. These include Willamette Industries Inc., Johnsonburg, Pa.; Appleton Papers Inc., Roaring Spring, Pa.; P.H. Glatfelter Co., Spring Grove, Pa.; Westvaco Corp., Covington, Va., and Luke, Md.; Union Camp Corp., Franklin, Va.; Stone Container Corp., Hopewell, Va.; and the former Chesapeake Corp. (now belonging to St. Laurent Paperboard Inc.) West Point, Va., pulp and kraft products mill.

Penalties for non-compliance are severe and involve not just fines based on the “gravity” of the violation, but also penalties to cover “any economic benefits the company has enjoyed by way of the violation,” said Mcguigan. However, mills that report their own violations within 10 days after “discovery” or agree to do further pollution abatement improvements, or both, can have their penalties “mitigated substantially,” he noted.

No agreement at APEC trade talks

Members of the Asia Pacific Economic Cooperation (APEC) in November failed to reach agreement on a wide-reaching trade pact that would have liberalized tariffs in nine sectors, including those on forest products.

U.S. representatives said opposition from Japan over opening up its forestry and fishing industries was the reason for scuttling the proposed agreement. APEC will not send the plan to the World Trade Organization for resolution.

In related news, the chief executive of Georgia-Pacific Corp., A.D. “Pete” Correll, said that the U.S. government should set up duties on imported commodities. In a speech to the Atlanta Chamber of Commerce reported by Reuters, Correll said the forest products and steel industries are large employers and that “We’re going to have to be willing to defend those industries.” The deflation of Asian currencies means those countries can manufacture goods cheaper than the U.S. According to Correll, “We cannot become the dumping ground for everyone else.”

Five-month strike at Abitibi is over

Following the recommendation of union leaders, members of the Communications, Energy, and Paperworkers Union of Canada (CEP) ratified a collective agreement with Abitibi-Consolidated Inc., ending a five-month strike that began June 15. Union members voted Nov. 17-19 on the agreement, which was reached following two months of negotiations. The contract was approved by a 73.7% margin. Abitibi-Consolidated expected to have all 10 idled mills restarted by the end of November 1998.

“With the pension improvements and significant wage increases, this agreement is an important step forward for workers in all industries,” said CEP president Fred Pomeroy. “The strike was very much worth it,” added Cecil Makowski, vice president of the CEP’s Ontario region.

The company is “pleased with the agreement,” said Susan Rogers, vice president of corporate communications for Abitibi-Consolidated. “We now have a long-term agreement with our employees that not only benefits them but gives the company, its customers, shareholders, and communities a world-class competitive contract with some peace of mind,” said Jim Doughan, president and CEO.

In exchange for a six-year agreement, the union received significant improvements to wages and pensions that will apply not only to the 4,000 workers at the Abitibi-Consolidated mills, but also to 25,000 pulp and paper workers at 60 mills east of Manitoba, the CEP said. The company gains the right to operate 365 days a year. The agreement is retroactive to May 1, 1998, and expires Apr. 30, 2004.

Workers received a C$2,750 signing bonus in 1998 as well as wage increases of $0.50/hour in the second and third years of the agreement, and an increase of 2% in each of the remaining three years. Both employees and the company will increase their contributions to pension benefits by 1%—Abitibi-Consolidated to 6% and employees to 4.5%, according to Rogers. “Retirees will receive 71% to 75% of their final working year’s earnings—something we’ve been seeking for the last 25 years,” Pomeroy said.

Other monetary provisions include pension improvements for disabled workers; improvements to basic life insurance, health insurance, and accidental death and dismemberment insurance; an increase in the long-term monthly disability benefit to C$2,400; and maintenance of the cost of living indexing formula, the CEP said.