 |
Tissue companies aim for more bulk at the top
It has certainly been an eventful year in the tissue sector. Over the past 12 months, the tissue industry has seen considerable changes in company names, machine technology and capacity levels
by Hugh O'Brian
The past year has been another challenging one for the world's tissue industry, with numerous factors at work in this dynamic sector of the paper business. Several large merger and acquisition (M&A) deals during 2000 and 2001 have changed the landscape of the tissue business, with some old names disappearing and other giants being formed by the transactions. Although the big companies have now become even bigger, and competition rules are an even more important consideration for future deals, it would be naÔve to believe that the restructuring is finished in tissue.
The hottest news of the past year was undoubtedly the giant deal between Georgia-Pacific (G-P) and Fort James which briefly moved G-P up to the number one spot among the worldís tissue producers. SCA was also very much in the tissue news with its attempted, and then aborted, acquisition of Metsä Tissue, as well as the planned purchase of a large chunk of G-P's away-from-home (AFH) business in the US. In addition to the changing business constellations, there were a string of new tissue PM startups during the year, including the world's largest tissue machine at G-P's Port Hudson mill in Louisiana, US.
One driver for all the M&A activity may well have been the tough business conditions that most tissue companies were operating under in 2000. Rising pulp and raw material costs put numerous companies in a squeeze during 2000, although by early 2001 pulp prices had eased back. Nonetheless, profit margins were under pressure for much of the year and stock prices at essentially all publicly traded tissue companies performed rather poorly.
Indeed, it is apparent that G-P's timing in July 2000 to make its $11 billion bid for Fort James was linked to the low value of Fort James' share price at the time, meaning that G-P could buy the company for a relatively good price. The deal was approved in late 2000 with the US Justice Department requiring G-P to sell off more than 250,000 tons/yr of capacity to preserve competition in the AFH sector.
The mega-merger between
Georgia-Pacific and Fort James
stole the tissue headlines last year |
|
In any event, the Fort James deal marks a dramatic transformation of G-P from a timber, pulp and fine papers company into a global giant in tissue, running neck and neck with Kimberly-Clark (K-C) as the world's biggest player. The deal also marked the last act for two old and respected names in the US industry, Fort Howard and James River, which had come together to form Fort James in 1997. At the same time that G-P announced its intention to buy Fort James, the company also said it would divest its timberlands by selling off The Timber Company, which served as the holding company for its enormous forest resources. Shortly after these initial announcements, G-P also declared it was planning to sell its market pulp mills in Brunswick, Georgia; New Augusta, Mississippi (Leaf River); and Woodland, Maine; thereby exiting the market pulp business.
G-P also made news last year when it started the world's widest tissue machine at its Port Hudson mill in Louisiana. The 7.62 m machine is a Valmet crescent former and is the first tissue PM at Port Hudson, which previously focused on white papers. It has to be assumed that G-P plans to add more tissue machines at the site in the future and there are already indications that a second tissue PM is not far off.
SCA makes speedy transformation
Like G-P, SCA's management attention was very much focused on acquisitions during the past year. Earlier in 1999, SCA made an unfriendly bid for Metsä Tissue, which was rapidly rejected by Metsä-Serla, the parent company. Then, after nearly a year of negotiations, a complex deal was worked out in mid-2000 by which SCA would trade its 50% ownership in Modo Paper to Metsä-Serla, in exchange for Metsä Tissue and Metsä-Serla's corrugated operations.
However, after months of investigation the deal reached a red light at the European competition authorities, which were demanding major concessions from SCA to reduce its dominant market positions in countries such as Sweden (80%) and Finland (55%) which would result from the deal. Under the terms of the agreement, either side was allowed to pull out if the European Union (EU) called for too much restructuring. In late January, the EU made it clear that the deal would not be approved and SCA therefore decided not to complete the agreement to take a majority stake, but retained its existing 20% minority share.
When the G-P/Fort James deal was first announced in mid-2000, SCA quickly made it clear that it was potentially interested in purchasing some of the assets that G-P might be forced to sell in the US to satisfy antitrust concerns. It was no surprise when, in January 2001, the two parties announced that SCA was buying a major chunk of G-P's AFH tissue business in the US.
The facilities which SCA will obtain are located at Alsip, Ill; Bellemont and Flagstaff, Ariz; Brattleboro, Vt; Greenwich, NY; Gary, Ind; LaGrange, Ga; and Menasha and Neenah, Wis. These are essentially all the operations which were formerly known as Georgia-Pacific Tissue, including the domestic facilities acquired in the 1999 joint venture with Chesapeake, with a total capacity of about 350,000 tons/yr. The purchase price was set at $850 million on a debt-free basis. This will be SCA's first major move into the US market and it should be expected that more deals are coming, given the company's penchant for growth.
On the personnel side, a major change took place in late 2000 at SCA with Alfred Heinzel leaving the position of president of SCA Hygiene to go back to his family's pulp and paper trading business in Austria. What effect this departure will have on SCA Hygiene in the future is hard to estimate, although Heinzel had been very instrumental in the rapid growth of SCA's tissue operations over the past seven years (PPI, March 2000, pp 19-23).
News from other areas
In other news regarding the "Big Four" of the world's tissue business, K-C bought S-K Corp of Taiwan, which held trademark and distribution rights in Taiwan for K-C global brands such as Kleenex, Huggies and Kotex. Also during the year, K-C announced that it would build two new state-of-the-art tissue machines at existing facilities at Jenks, Oklahoma, and Loudon, Tennessee.
In the US, Procter & Gamble (P&G) announced plans to expand tissue and towel production capacity by adding two new tissue PMs, as well as associated converting equipment, at its Mehoopany, Pennsylvania, mill. The giant $350 million expansion includes two new 75,000 ton/yr Metso Paper PMs, with the first one scheduled to start up in July of this year.
P&G also made an important announcement regarding its program to license through air-drying (TAD) technology to outside companies. In an effort to boost revenue streams, P&G has started a company-wide program to license technology in return for licensing fees. The producer decided to use the Italian tissue machine company, Toschi, as its first partner in offering this technology to other tissue making companies. The fact that P&G's patents on the TAD systems, some of which date back to the mid-1960s, are expiring, may also have been a factor in the decision to offer this technology to outsiders. It remains to be seen how much additional impact this will have on the tissue market and if the move leads to wider use of TAD systems.
In Latin America, several new tissue PMs started up in 2000, including machines at Papelera San Andres de Giles in Argentina, BN Papel Catarinense in Brazil, Productos Familia in Columbia and at K-C's plant in El Salvador. In addition, several other projects that were sidetracked due to the economic turbulence and exchange rate problems of the late 1990s, got back on track and should be coming into operation in the next year.
In Asia, tissue machine activity has been relatively quiet following the startup in 1999 of Asia Pulp & Paper's (APP) two big new units, bringing the company's capacity to 270,000 tonnes/yr. The addition of this large chunk of new capacity on the Asian market has reportedly been difficult to absorb although there are now signs that the supply/demand situation is becoming more balanced.
However, APP's financial condition was making headlines in early 2001, as it was reportedly having trouble meeting debt repayment obligations. The company announced last year that it would sell non-core assets in China, including packaging and tissue, to help reduce debt levels. As of early 2001, the tissue assets had not been sold and it appeared that APP was in such difficult financial straits that the company might be forced to sell some core assets as well. Where the tissue mills will end up is not yet clear.
Brands face tough times in Europe
In Europe, the market continues to be a battlefield between brands and private label products. Brands have had a hard time over the past year in the region. In the UK, P&G, which started up a new TAD machine near Manchester in 1999, was reported to be having difficulties with its Bounty and Charmin brands. There have also been unconfirmed reports that P&G has been thinking of reducing its involvement in the European market, although that seems somewhat hard to believe considering the investments the company has made in recent years. At the same time, K-C, which is also heavily reliant on branded product, has continued to have problems in Europe with its tissue business.
Overall, it has been tough going for the brand makers. On the other hand, several Italian companies, which are generally very much focused on the private label business, are said to be having troubles of their own. The relatively high pulp prices have squeezed profit margins at the family-owned Italian firms just at a time when many of them are expanding in countries outside Italy. As a result, some of the firms are reported to be in a difficult financial situation as they have invested substantially at the same time as profit margins have come under pressure. One industry observer reported that some companies have had to turn to the banks to recapitalize.
Technical improvements
In the technical arena, there have been several developments in the past year, especially in the area of tissue pressing. Leicester Paper Company (LPC) in the UK is building a new tissue machine, supplied by Voith Paper/Andritz, at its Leicester mill which will be the first entirely new tissue machine using the TissueFlex concept. Previously the only machines incorporating the TissueFlex concept have been rebuilds, but now the concept will be tested fully on a new machine. The results from the rebuilt TissueFlex installations have not been widely reported so it is hard to ascertain how successful the concept has been so far.
During the past year, Metso Paper (formerly Valmet) reported some interesting though not entirely conclusive results regarding tissue pressing tests that it has undertaken. The basic premise is that higher bulk might be achieved in a conventional tissue sheet by dewatering with a suction press ahead of the Yankee dryer rather than against the Yankee. Work is continuing to attempt to gain further understanding into this reported phenomenon.
In the tissue converting sector, Paper Converting Machine Company of the US has introduced its new Maxim surface rewinder which is reported to run at speeds up to 900 m/min or 45 logs/min. Meanwhile, Perini of Italy has reported continuing success with its 5.4 m wide XXL converting line, with a total of four lines now sold. LPC in the UK will take delivery of the fourth XXL and install it inline with the new TissueFlex paper machine.
In the paper machine supplier area, some of the remains of the once-mighty US machine maker Beloit have been brought back to life. The US company Sandusky has taken over Beloit's Yankee dryer manufacturing, while the Italian operations of Beloit in Pinerolo have been renamed PMT Italia. In the US, 50 employees of the former Beloit in Wisconsin, US, have formed a new company named Paperchine which will be providing technical assistance for existing Beloit machines.
All in all, it has been an eventful year in the tissue sector, with merger movements creating larger companies at the top of the tissue pile. At the same time, companies have managed to scrape through difficult trading conditions, but this does not seem to have stopped them from investing in new capacity across the globe in tissue. The technical developments have not been lacking either in the past 12 months, with TAD installations growing and advances seen in the press section of machines. If the last 12 months are anything to go by, the industry should brace itself for more news on both the business and technical fronts in 2001.
|
){kind=link}