1Q Canadian paper profits down 30%

Canadian paper and forestry company earnings fell 30% in the first quarter, mainly due to weaker demand for market pulp, newsprint, and softwood lumber, the industry¼s three major export commodities. Canadian pulp and paper mills and sawmills cut production to avoid inventory buildup, but prices still declined for many products. Export pulp prices in global markets fell between $60-$110/mton from the end of December, and lumber prices fell to a 10-year low during the first quarter. Higher energy costs also hurt earnings during the period. Selective price increases for newsprint and some higher margin paper grades, as well as cost controls, partially offset the negative impacts in other markets. Higher sales volumes and exports of printing and packaging papers to U.S. markets were helped by the strong U.S. currency relative to the Canadian dollar. Overall, first-quarter earnings (before nonrecurring charges or one-time gains from asset sales) for 16 Canadian paper and forestry companies declined 29.8% to C$309 million from C$440 million a year ago. Sales volume was relatively unchanged, falling just 1.0% to C$7.5 billion. The net profit margin fell to 4.1% from 5.8%.

Printing, packaging experience weak 1Q

Commercial printing, packaging, and office products distribution companies reported weaker sales volume and operating results in the first quarter of 2001, reflecting the impact of the U.S. economic slowdown. Most sectors of the retail economy remained depressed during the first quarter, which reduced consumer spending and demand for traditional print products like magazines, catalogs, direct mail advertising, and books. Lower manufacturing activity hurt demand for industrial and consumer packaging materials like corrugated boxes and folding cartons. The steep rise in U.S. natural gas and electricity costs also reduced profitability for all print and packaging groups. Of reporting companies, R.R. Donnelley & Sons Co. said that first-quarter earningsãincluding $22 million of charges for plant closingsãdropped 68% as the slowing U.S. economy hurt demand for advertising, magazines, and books. The company reported earnings of $14.5 million, down from $46.7 million. Before restructuring chargesãwhich included costs of closing printing plants in South Daytona and St. Petersburg, Fla., Houston, Texas, and York, Englandãnet income was $27.9 million. Avery Dennison Corp., a leading manufacturer of labels and specialty packaging materials, reported first-quarter earnings that fell 9.4% from a year ago. The company said its net income fell from $70.2 million to $63.6 million, and sales slipped slightly to $963.2 million from $965.3 million last year.

MERGERS/ACQUISITIONS

Abitibi, Norske Skog to buy Pan Asia

Abitibi-Consolidated Inc. and Norske Skog said they will buy out third partner Hansol Paper Co.¼s stake in Pan Asia Paper Co., the largest newsprint operation in non-Japan Asia. The companies will pay $350 million for Hansol¼s stake in the Singapore-based company, which was formed in February 1999. Pan Asia Paper has capacity to produce 1.45 million mtpy of newsprint and groundwood paper at mills in Shanghai, China; Singburi, Thailand; and Chonju and Chongwon, South Korea. Abitibi said it will use existing credit lines and proceeds from a divestiture program to fund its portion of the acquisition. For its part, Norske Skog said it plans to finance the deal through credit lines it already has with eight banks. In addition, the company said its balance sheet has been enhanced by the sale of its Tasman and Mackenzie, B.C., pulp mills, the Tasman Orient Line, and Union Geithus.

UPM-Kymmene to acquire Haindl

UPM-Kymmene Corp. announced it will acquire 100% of the assets of German paper producer G. Haindl¼sche Papierfabriken KGaA (Haindl) for $3.25 billion. As part of the deal, UPM-Kymmene will immediately divest two of the Haindl mills to Norske Skog of Norway. Norske Skog will acquire the Walsum mill in Ruhr, Germany, and the Parenco mill in Renkum, the Netherlands, for $915 million, which corresponds to $1,080/mton of capacity. The transaction is expected to close in the second half of this year. Haindl operates 12 paper machines across Germany, Austria, and the Netherlands with total production capacity of 2.7 million mtpy. The four millsãwhich will remain in UPM-Kymmene¼s possessionãare located in Augsburg, Schongau, and Schwedt, Germany; and Steyrerm¸hl, Austria. The mills have a total production capacity of 1.9 million mtpy including 930,000 mtons of newsprint, 590,000 mtons of SC papers, and 380,000 mtons of LWC.

Weyco to challenge Willamette¼s execs

Weyerhaeuser Co. will step up its $5.5 billion takeover bid for Willamette Industries Inc. as it attempts to win three seats on the Portland, Ore.-based company¼s nine-member board of directors. Weyerhaeuser said it would walk away from the deal if it loses the proxy battle, potentially costing Willamette shareholders millions of dollars in lost premiums. Weyerhaeuser previously extended its $50/share all cash tender offer. At the time of the last extension on May 18, the number of shares tendered was approximately 44.9%, down from a high of 50.8% tendered in February. Willamette has repeatedly rejected Weyerhaeuser¼s unsolicited takeover bid, saying the company is „not for sale¾ and accusing Weyerhaeuser of trying to „steal Willamette on the cheap.¾

Westvaco acquires Alfred Wall in Austria

Westvaco Corp. completed its acquisition of a majority interest in Alfred Wall AG, a leading European supplier of consumer paperboard packaging. Based in Graz, Austria, the company operates six packaging plants located in Austria, Poland, Germany, and the U.K. Wall employs about 900 people and had annual sales of $127 million in 2000.

Pacifica to print acquisition proxy

Cerberus Capital Management lost a case against Pacifica Paper Inc. The New York-based management firm attempted to hold up the mailing of the proxy about the acquisition of Pacifica Papers by Norkse Skog Canada. A Vancouver, B.C., judge threw out the case. However, Cerberus, an 18.8% shareholder in Pacifica Papers, was expected to appeal the ruling.

Kruger to modernize Wayagamack mill

With the purchase of Abitibi-Consolidated Inc.¼s Wayagamack uncoated groundwood papers mill in Quebec, Kruger Inc. has three years to decide on how to modernize the mill in Trois-Rivieres, convert it to LWC paper production, and spend funding provided by the Canadian government as part of the C$300-million modernization project. The two-machine mill makes about 120,000 mtpy of specialties and directory paper on Nos. 2 and 3. Abitibi-Consolidated sold Wayagamack to Kruger for C$58 million. Kruger also announced that it completed a C$45 million project at its first Trois-Rivieres mill, resulting in a capacity increase of 28,000 mtpy. The work started last November and was recently completed. Newsprint paper machines Nos. 7 and 10 were modernized, and capacity increased by 19,000 mtpy. Modernization of a coating line represents a 15,300 mtpy increase in annual production of coated paper, the company said in a release. A new winder will allow the mill to turn out more 50-in. and larger rolls.

IP sells flexible packaging business

International Paper Co. (IP) has agreed to sell its $400 million a year in sales Flexible Packaging Business to The Sterling Group L.P., a private equity firm in Houston, Texas. Terms of the sale were not disclosed. The Flexible Packaging Business manufactures both polyethylene and multiwall paper bags, plastic sheeting, and laminated products for such markets as pet food, charcoal, and lawn and garden products. The business employs 2,000 people and has 10 converting facilities, including a product development and graphics center in Spartanburg, S.C. Most of the business was acquired from the Union Camp Corp. merger in 1998.

Appleton Papers sale to workers on track

Appleton Papers Inc. announced that it¼s planning to use an employee stock ownership plan (ESOP) to buy the company from its British parent Arjo Wiggins Appleton plc for a sum that has yet to be determined. Both management and the employees¼ union are supporting the buyout, and Arjo Wiggins gave preliminary approval to the deal.

IP keeps Beckett mill in Hamilton, Ohio

International Paper Co. (IP) no longer plans to sell its 232,000-tpy coated and uncoated free-sheet mill in Hamilton, Ohio, and will keep intact its fine papers unit. IP acquired the mill from Beckett Paper Co. and put it up for sale in mid-2000. The company has shifted opinion regarding the mill and the fine papers division, namely due to last year¼s unsuspected increase in prices for coated papersãwhich were up momentarily in the third quarterãand the considerable downtime by IP taken in the production of uncoated free-sheet since the fourth quarter of 2000, the company said.

IP won¼t sell Moss Point to competition

IP¼s indefinitely-shut 310,000-tpy Moss Point, Miss., bleached packaging board and specialty papers mill will not be sold to another papermaker. The company plans to sell the three machines, dismantle them, or use them at other IP mills. Moss Point¼s assets were the No.2 kraft paper machine (about 50,000 tpy), No. 3 label stock machine (60,000 tpy), and the No. 5 coated bleached paperboard machine (200,000 tpy).

Glatfelter sells Ecusta, exits tobacco papers business

P. H. Glatfelter Co. said it has reached a definitive agreement to sell its Ecusta division to PURICO (IOM) Ltd. of the United Kingdom for approximately $39 million in cash plus the assumption of certain liabilities related to the business. The transaction involves the sale of the assets of the Ecusta division paper mill in Pisgah Forest, N.C., together with flax straw processing facilities in Canada and Australia. The Ecusta mill produces cigarette and tobacco papers, lightweight printing papers, and technical specialty papers. The mill has about 920 employees. Related to the transaction, the company said its Schoeller & Hoesch GmbH & Co. subsidiary in Germany had entered into a two-year agreement to manufacture and supply tobacco papers to RF & Sons GmbH, a PURICO affiliate also located in Germany. As part of its strategic repositioning, Schoeller & Hoesch plans to shift its tobacco papers production to other products over the next two years.

Spinnaker to close label plant in Maine

Spinnaker Industries Inc. said it will close its label-coating facility in Westbrook, Maine, and sell some of the plant¼s assets to Fasson Roll North America, a unit of rival Avery Dennison Corp. Pressure sensitive (PS) label production will be concentrated at the firm¼s Troy, Ohio, facility. Spinnaker purchased the Maine plant from S.D. Warren Co. in 1998.

Sappi NA to close Mobile, Ala., mill

Sappi North America plans to close down its 325,000-tpy coated and uncoated free-sheet mill in Mobile, Ala., by mid-December. The company has not decided whether it will sell the mill or keep the real estate and sell off its three machines. According to the company, the mill¼s output of uncoated paper is not a core business for Sappi. The mill¼s 100,000-tpy capacity of coated free-sheet and specialty papers will be shifted to one of Sappi¼s three other North American mills: Skowhegan or Westbrook, Maine, or Muskegon, Mich.

Abitibi cuts 180,000 mtons of capacity

With a continued eye on reducing newsprint supply in North America, Abitibi-Consolidated Inc. said it would permanently shut down 180,000 mtons of newsprint capacity. The company plans to shut the No. 8 machine and convert machine No. 9 to produce value-added grades at its Kenora, Ont., mill. Additionally the company said it will idle Kenora¼s 155,000-mtpy No. 10 newsprint machine for market-related reasons until fall. The Kenora facility is known as one of the company¼s highest-cost mills. Soaring natural gas costs and the fact that the mill uses three separate furnishes in production contribute to the mill¼s reputation for being a high-cost facility.

Willamette plans Port Wentworth upgrade

Willamette Industries Inc. has been selling about 60% of its Port Wentworth, Ga., mill¼s softwood (SBSK) and hardwood pulp (SBHK) output on the European market. The facility, which previously produced only hardwood pulp, continues to ship softwood to Willamette mills in Hawesville, Ky., Johnsonburg, Penn., and Kingsport, Tenn. Willamette¼s board of directors has approved a $30-million project to modernize the Port Wentworth mill so it could produce SBSK more efficiently and „strengthen our position as a low-cost producer.¾ Willamette had been producing softwood pulp at Port Wentworth since January to avoid oversupplying the hardwood pulp market. When the project is completed, the mill will be able to produce 100% softwood at 771 mtpdã equal to its hardwood capacity when running fullãa significant improvement over its current softwood capacity of 680 mtpd. Willamette expects to finish the project by fourth quarter 2002.

Madison¼s Maine mill upgrade is complete

Madison Paper Industries recently completed a $52 million project to rebuild and upgrade the No. 3 machine at its supercalendered (SC) groundwood papers mill in Madison, Maine. The machine was taken down Mar. 19 and restarted Apr. 30, a company spokesman said. The machine rebuild is necessary for Madison to produce higher-quality SC papers. The No. 3 machine has capacity to produce 190,000 mtpy of SC-A.

K-C upgrades Mobile tissue machine

Kimberly-Clark Corp. (K-C) announced plans to upgrade machine No. 5 at its 245,000-tpy Mobile, Ala., tissue mill. The announcement came on the heels of news that the mill would indefinitely shut one of its five machines due to high energy costs. About $36 million will be invested in the No. 5 paper machine to retool the machine to produce a higher grade of paper towels at a more efficient rate. After the upgrade on No. 5, K-C will idle No. 7 indefinitely, which produces a similar grade of paper to No. 5, but at a less efficient rate. Both machines make less-absorbent paper than is produced on the mill¼s other three machines. The upgrade will make No. 5 the mill¼s best machine. K-C hopes to eventually rebuild and restart No. 7, but the mill can currently purchase paper cheaper than it can produce it on either No. 5 or No. 7.

Durango-Georgia gets worker injury fine

Durango-Georgia Paper Co. has been fined a total of $157,500 for a November accident at its St. Marys, Ga., paper mill in which a worker lost both arms during maintenance procedures. The U.S. Occupational Safety and Health Administration (OSHA) fined the company $158,500 last August for a similar serious violation of safety rules in which an employee¼s hand was crushed by paper machine rollers when safety guards were removed for maintenance.

Weyco mills restart after labor agreement

More than 1,300 Weyerhaeuser Co. employees at four mills in the Pacific Northwest returned to work after ratifying a new labor agreement and ending a three-week strike. On May 31, members of the Assn. of Western Pulp and Paper Workers union approved a new six-year contract, which was finalized during negotiations May 25-26 with the help of a federal arbiter. Details of the new agreement were not available. At issue in the negotiations were pension issues and the cost of medical benefits. Weyerhaeuser had already restarted some pulp and paper production prior to the resolution of the strike. The struck mills included Longview and Cosmopolis, Wash., and Springfield and North Bend, Ore. The four mills have capacity to produce more than 4,500 tpd of pulp, linerboard, and corrugating medium. The company said it lost an estimated 54,000 tons of pulp, corrugating medium, and linerboard production due to the strike, which began May 8.

American Tissue to lease Michigan mill

American Tissue Inc. of Hauppauge, N.Y., has agreed to a lease agreement to operate the former Crown Vantage Inc. paper mill in Parchment, Mich. For $1 a year, American Tissue will lease Mill No. 1 (100 tpd capacity) and Mill No. 2 (320 tpd capacity), the power plant, and the wastewater treatment plant. The Parchment facility has six paper machines and five off-machine coaters, producing a wide variety of lightweight packaging papers and fine printing papers. The paper mill uses purchased pulp and does not have an integrated pulp mill. The mill was the City of Parchment¼s largest employer with 249 jobs at the time it was closed. American Tissue has guaranteed to create at least 200 full-time jobs by May 2003. The lease agreement gives American Tissue a year to bring the mill back to operation.

G-P¼s Kalamazoo mill sale collapses

Georgia-Pacific Corp. (G-P) said that negotiations to sell its closed paper mill in Kalamazoo, Mich., to American Tissue Inc. have collapsed. The Kalamazoo mill operated for more than 100 years before it was closed in December with the loss of 285 jobs. The Kalamazoo mill had production capacity of 130,000 tpy of coated and uncoated recycled printing papers. G-P blamed weak market conditions and the small size and age of Kalamazoo¼s two paper machines for the shutdown. G-P said American Tissue wanted to renegotiate a previously agreed purchase price of $13 million. American Tissue wanted to cut $3 million from the purchase price, which covered raw materials and finished goods remaining at the plant. The mill assets and working capital were valued in excess of $30 million, according to G-P. G-P said it will probably not seek another buyer and will move forward with the disposition of the mill¼s assets.

Abitibi closes Iroquois Falls PM

Abitibi-Consolidated Inc. said it will permanently close specialty paper machine No. 1 at its Iroquois Falls, Ont., mill, after workers represented by Local 90 of the Communications, Energy, and Paperworkers Union (CEP) rejected a restructuring program offered by the company. The No. 1 machine produces roughly 53,000 mtpy of specialty grades such as construction paper for schools, heavyweights, and non-printing grades. Since the machine produces grades outside of Abitibi¼s „core¾ grades of newsprint and groundwood papers, it was an „obvious¾ choice for closure, according to the company. The machine is scheduled to be shut Sept. 14, giving Abitibi-Consolidated time to fulfill its current orders. According to the CEP, workers of Local 90 rejected the offer because they believe the company would either breach the contract or call for renegotiations at a later date. Abitibi-Consolidated and Local 90ãwhich represents 320 workers at the millãhave been in negotiations over the machine since late April. After the No. 1 machine is shut, Abitibi will operate one 230,000-mtpy newsprint machine at Iroquois Falls.