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Four major mergers; two trans-Atlantic blockbusters Merger mania in the North American paper industry has continued this year with four recent major announcements. The first announcement came in early February when groundwood paper giant Abitibi-Consolidated Inc. announced its intent to acquire Donohue Inc. in a C$7.1 billion stock and cash transaction. Upon completion, this merger will further establish Abitibi as the world’s largest newsprint maker and create North America’s fifth largest lumber producer. "We believe that with Donohue’s benchmark low cost and best practices—including the proven wisdom of lumber integration—combined with our efficiencies, international portfolio, and marketing competence, the new Abitibi-Consolidated will be positioned to have strong performance for both shareholders and customers," said Abitibi’s John Weaver, who will continue as president and CEO of the new company. Donohue CEO Michel Desbiens will serve as chairman of the board, with former Abitibi operating chairman Ronald Y. Oberlander as vice chairman. The deal is expected to close by the end of the first quarter pending approval by Donohue shareholders and certain regulatory approvals. The new Abitibi-Consolidated would remain the largest newsprint producer in the world with a 16% market share based on capacity to produce or market 6.3 million mtpy of newsprint at 25 mills in North America, the U.K., and Asia. In North America, the merged company would have a 34% market share with capacity to produce 5.6 million mtpy, well ahead of number-two Bowater, with 2.6 million mtpy, and Kruger Inc., with just over 1 million mtpy. The new company would have capacity to produce and market 1.7 million mtpy of groundwood specialties and 444,000 mtpy of market pulp. The company also will become the fifth-largest lumber producer in North America with 19 wholly owned and five partially owned sawmills with a total production capacity of 2.2 billion bd ft. Weaver said the company will permanently withdraw, through machine closures, 400,000 mtpy of high-cost newsprint capacity over the next 18 months. Weaver said Abitibi will not close or sell any of the Donohue mills, and said he would work with Desbiens after the deal closes to determine where capacity will be taken out. The first of two trans-Atlantic merger announcements followed with the announcement that Finland’s UPM-Kymmene Corp. and U.S.-based Champion International Corp. intend to merge in a $6.5 billion all-stock combination that would create a leader in coated papers and a truly global forest products company with production facilities in 17 countries and a sales and distribution network spanning five continents. The combined enterprise value is about $20.2 billion—$15.3 billion in equity and $4.9 billion in net debt. "We expect this geographic diversification to fortify our strong position in the magazine and fine papers businesses and to moderate the traditional cyclicality in our earnings base," said UPM-Kymmene pres. and CEO Juha Niemela, who will lead the merged company, to be called Champion International. The deal is expected to close during the first half of the year, pending shareholder and regulatory approvals in various jurisdictions. The new entity will retain UPM-Kymmene’s griffin logo as well as its Helsinki headquarters. Champion chairman and CEO Richard E. Olson will serve as senior exec. v.p. and a member of the board of directors of the new company. The combined company would have total revenues of $14 billion and a total papermaking capacity of about 12.1 million mtpy. In addition, the merged company will manage 15.8 million acres of forestlands worldwide. In a second trans-Atlantic corporate mega-merger announced on the heels of the UPM-Champion deal, Stora Enso of Finland said it would acquire Wisconsin-based Consolidated Papers Inc. for $4.8 billion. Based on capacity estimates, the new company would be the second-largest producer of paper and paperboard in the world, with total capacity of about 15 million mtpy. International Paper Co. remains the largest worldwide supplier, with 16 million mtpy of capacity. Newly-formed Champion International Corp. ranks third with about 12 million mtpy. "The further development of our manufacturing base in North America is our highest priority," Stora Enso CEO Jukka Harmala said in a news release. "We are particularly attracted by Consolidated Papers’ narrow product focus, the 100-year reputation of the business, and its outstanding customer relationships." Consolidated Papers Chairman George W. Mead, grandson of the company’s founder, has been invited to join the Stora Enso board of directors. A Consolidated Papers official said the new name of Stora Enso’s North American assets has not been determined, but said the company plans to retain the Consolidated Papers brands. The transaction is expected to close by August. The fourth merger announcement came from Smurfit-Stone Container Corp., already the world’s largest paper-based packaging company. The company pushed the consolidation bar higher in the containerboard industry by moving to acquire the eighth largest North American containerboard producer, St. Laurent Paperboard Inc. of Montreal. If the $1.4 billion deal goes through, Smurfit-Stone would manage an estimated 19% of North American containerboard capacity, including 5 million tpy of linerboard, and gain a dominating position in mottled white/white top linerboard production, St. Laurent’s main staples. Smurfit-Stone would add 3.4% market share to its containerboard assets from St. Laurent. Smurfit-Stone president/CEO Ray M. Curran said in a release that St. Laurent’s white linerboard would help the company better "serve the fast-growing market for high-impact graphics packaging, and it presents an excellent business and geographic fit." The largest white linerboard producer in North America, St. Laurent operates three mills in Canada and a large mill in the U.S. at West Point, Va. The deal is expected to close in the second quarter if approved by St. Laurent shareholders and regulators.
K-C plans two new tissue machines Kimberly-Clark Corp. will add a new machine and converting lines at both its Jenks, Okla., and Loudon, Tenn., mills in response to a surge in demand for its improved tissue lines and to reduce dependence on purchased tissue, the company said. The projects—which represent a $300 million investment—will go online in mid-2001 with production phased in over a two-year period. A K-C spokeswoman declined to detail capacities of the new machines, or expenditures on the individual projects. Currently, the Jenks mill has a capacity of 72,000 tpy on one machine and Loudon a capacity of 60,000 tpy over three machines. Some 150 jobs will be created at Jenks and 60 at Loudon. The new machines, will utilize UCTAD (uncreped through air dried) technology.
Sale of final Beloit units approved Harnischfeger Industries Inc. announced results of a sale hearing held before the Bankruptcy Court in Delaware. The court approved the following three sales transactions involving Beloit Corp. assets: Paper Aftermarket and Roll Covers Division: Valmet Corp. Paper Technology: Mitsubishi Heavy Industries, Inc. Pulp and Finishing Divisions: Groupe Laperriere & Verreault Inc. Sales of these assets remain subject to certain closing conditions. In addition, certain of the transactions are subject to clearance from U.S. regulatory authorities. The court previously approved transactions involving the sale of Beloit's OASIS business and Woodyard Division to management buyout groups. On June 7, 1999, the company and its U.S. subsidiaries, including Beloit, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Harnischfeger indicated that it is pursuing the sale and liquidation of the remaining assets of Beloit. These assets include Beloit's primary manufacturing facilities in Beloit, Wis. and Rockton, Ill. and certain overseas paper machinery manufacturing businesses. In a separate court ruling, Asia Pulp & Paper Co. (APP) announced it will settle disputes related to the purchase of two paper machines from Beloit Corp. The settlement is subject to certain conditions, including U.S. bankruptcy court approval. The disputes and related legal proceedings involve purchase contracts for two free-sheet paper machines that were to be installed at APP’s Indah Kiat subsidiary in Perawang, Indonesia. Construction of the machines was put on hold in 1998 due to difficulties completing financing by APP. Under the terms of the agreement, APP said it would acquire certain equipment, components and spare parts produced or acquired in connection with the paper machines, in exchange for payment to Beloit of $135 million. The payment will be made in cash and a three-year note guaranteed by APP. APP said it expects to use some of the spare parts in existing paper mills. Beloit would retain APP’s $46 million in advance payments for the paper machines. In addition, the agreement calls for cancellation of a $59 million promissory note given to Beloit by APP as well as four letters of credit provided by Beloit to APP.
Mill workers begin 2000 negotiations Contract talks between labor unions and U.S. pulp and paper mills in year 2000 repeat familiar themes of the 1990s, sources report. Union negotiators say they are seeking wage increases, continued defined pension plans, and either continuation or increases in employer contribution to insurance coverages. The American Forest & Paper Assn. (AF&PA) reports that negotiations in 2000 will cover 16,787 employees at 36 mills. Last year’s bargaining covered 15,085 workers at 42 mills. AF&PA’s labor summary shows the majority of mills (10) negotiated five-year contracts last year. Nine mills negotiated six-year contracts, while four approved four-year pacts, two approved two-year pacts, and one a one-year agreement. Four mills negotiated the desired three-year contracts with union workers. AF&PA reported regional average first year wage increases for 1999 as follows: New England, 1.8%; Eastern, 2.9%; Southern, 2.3%; Midwest, 3.0%; Pacific Coast, 2.9%. The national average was 2.8%, up from 2.7% in 1998. Keith Romig of the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE) said locals are being urged to resist making concessions on shift differential pay. "In most contracts, pay is time and a half for Saturday, Sunday, and holiday hours. We want to retain that. Over the past 15 years, some companies have pulled out on that pay scale. International Paper has been particularly bad with that," he added. In pension plans, Romig said PACE is looking for an across-the-board $2 increase per month, per year of service. He said, the union would like to see higher participation in a joint labor/industry plan called the "PACE Industry Union Management Pension Fund." PACE is also seeking an increase in employer contributions to life, sickness, and accident insurance. "We’re asking companies to at least hold the line on the employers’ share of health insurance." said Romig Shifting ownership patterns and mill shuts cause continued concern with labor. Romig said, "The locals need to negotiate successorship clauses so if the mill is sold, the union is still recognized and contracts continue. In the case of mill closings, workers need to have severance and relocation expenses written into their contracts too.”
Justice Dept. probes newsprint pricing The U.S. Justice Dept. is investigating possible antitrust violations within the newsprint industry, according to press reports in February following a Wall Street Journal article. The reports quoted a department spokeswoman as saying "we have an open investigation into the possibility of anti-competitive actions in the newsprint industry." Reports said the investigation is being conducted by the antitrust division’s Cleveland, Ohio, office. Industry sources said the investigation relates to the 1994-95 period, when newsprint prices jumped from an average low of about $420/metric ton to an all-time high of $755/metric ton. The Journal said 30-40 newsprint salesman had been subpoenaed by Justice. It was unclear whether the probe is focusing on any particular companies or geographic regions. ** Rebuild at Kruger mill in Corner Brook Voith Sulzer Paper Technology said it received an order from Kruger Inc. to rebuild the top wire on PM No. 7 at the Corner Brook, Nfld., newsprint mill. The top wire will be rebuilt into a DuoFormer D. The rebuild, scheduled for October, is expected to enhance paper quality and will improve sheet two-sidedness for better printability. ** Empire State news mill pursues N.Y. site Empire State Newsprint LLC announced that it has signed option agreements to buy an 84-acre parcel in Ulster, N.Y., where it plans to build a $680 million, 300,000 mtpy recycled newsprint mill. Empire State said it was working on the project in a joint venture with Besicorp Development Inc. Plans call for making newsprint out of 366,000 mtpy of old newspapers and magazines. The project includes plans for building a cogeneration plant that would supply energy for the mill. The cogeneration plant would be a natural gas-powered facility and produce 475 MW, including all the steam requirements for the mill. Empire State and Besicorp said they filed pre-application documents with state permitting agencies on Jan. 28. The New York State Dept. of Public Service and the New York State Dept. of Environmental Conservation will do an environmental review of the proposal.
Champion rebuilding PM at Sartell, Minn. The coated groundwood papers machine at Champion International Corp.’s Sartell, Minn., mill was scheduled to be down for 22 days beginning Mar. 15 as part of a $40-$46 million rebuild project, a company official said. The mill is adding a gap former to improve quality and reduce the cost of production. The machine outage will curtail production by about 15,000 tons, and the unit will be restarted Apr. 6. The mill has total capacity of 203,000 tpy of coated groundwood on PM No. 3 and 102,000 tpy of uncoated groundwood papers on two machines. A possible increase in capacity as part of the upgrade was not detailed.
Fort James shuts PM at Clatskanie Fort James Corp. permanently shut its 140,000 tpy uncoated groundwood papers machine at its Wauna mill in Clatskanie, Ore., during the first week in February, more than a week earlier than planned. The company said it shut the machine because its relatively small size as a producer of high-brightness uncoated groundwood papers prevented it from competing effectively. The company said it would continue to operate a recovered paper processing plant located on the mill property.
Caraustar closes Baltimore mill Caraustar Industries Inc. said it has permanently closed its Chesapeake Paper Board recycled paperboard mill in Baltimore, Md. The mill closing was part of Caraustar’s ongoing efforts to increase operating efficiency and reduce costs throughout its manufacturing base. The mill produced about 35,000 tpy of uncoated and specialty grades of recycled paperboard for folding carton and other packaging customers in the Northeast, Mid-Atlantic and Southeast markets. The company said it would continue to operate a recovered paper processing plant located on the mill property.
SSCC keeping Florida mill shut for good Smurfit-Stone Container Corp. expects to never restart the 355,000 tpy Jacksonville, Fla., kraft linerboard mill and might shut other capacity if needed, company executives told Wall Street analysts in February. The one-machine Jacksonville mill was one of four mills that the company indefinitely shut at the end of 1998. Company management said "unequivocally that Jacksonville (nor any of the other three shuttered mills) would ever operate in containerboard ever again," said Chip Dillon of Salomon Smith Barney in a report. "Management in fact stated that it might instead consider the closure of an additional mill should market conditions and/or efficiency maximization dictate (it)," Dillon said. Aside from the closed Jacksonville kraft linerboard mill, Smurfit-Stone operates the 470,000 tpy Seminole recycled mill in Jacksonville.
Riverwood, Greif Bros.report resultsn Riverwood International Corp. reported operating income of $34.6 million for the fourth quarter of 1999, compared with $9.1 million in the 1998 quarter before a restructuring charge. Net sales were $289 million, a gain of 6.4% from $271 million in 1998. For the full year, the company reported 1999 operating income of $120 million versus $53 million in 1998. Net sales for the year were $1.1 billion, which was down 2% from 1998 net sales. Greif Bros. Corp. of Delaware, Ohio, said net income increased sharply to $23 million from $3.7 million for the three months ended Jan. 31, 2000 versus the same period in 1999. Net sales rose to $229 million from $180 million a year ago. Greif is an integrated producer of containerboard, industrial shipping containers, and corrugated products.
Deinked pulp mill may reopen Northampton Pulp was scheduled to file applications with the Pennsylvania Dept. of Environmental Protection to revitalize the former Ponderosa Fibres of Pennsylvania mill in Northampton and obtain necessary permits to reopen the mill in early 2001. The 400 tpd marked deinked pulp mill has not operated since November 1998. Improvements are planned to address chronic noise and odor problems from the facility, with approximately $3.5 million slated to be spent on air and water treatment system improvements. The company’s plan will be reviewed by state air quality officials and must be approved before work can begin. Ponderosa filed for bankruptcy in April 1998 and a federal bankruptcy judge transferred ownership of the plant from Ponderosa to Northampton Pulp in June 1998. The new company is owned by bondholders who financed plant construction. Bondholders agreed to give up the equity in the bonds in exchange for proportional ownership shares in the new company. Money for the improvements is coming from a multimillion-dollar settlement of a lawsuit Ponderosa filed against Parsons Main Inc., the company that built the plant.
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| Pulp & Paper Magazine, April 2000 | CONTENTS | ||
| Columns | Departments | Focus/Features | News |
| From the Editors | News of people | Information Systems | Month in Stats |
| Maintenance Management | Conference Calendar | Pulping Technology | Grade Profile |
| Chemical Markets | Product Showcase | Calculating Drying | News Scan |
| Comment | Supplier News | Poised for Expansion | |
| Mill Operations | North America's five-year outlook | ||
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