February 2008
By Graeme Rodden, Editor
A few years back, Pulp & Paper published an article about five companies to watch in the upcoming year. With renewed merger and acquisition activity as well as other happenings in the industry, 2008 is a good time to refresh that outlook and take a look at five companies to watch in the near future. In choosing five, there were some obvious ones that could classify as "no brainers". But there was also no lack of other companies that are making news but flew under the radar somewhat because of the splash made by a couple of the announcements.
AbitibiBowater
This company is first on the list for a multitude of reasons. The industry (along with many communities in North America) was holding its breath while it waited for AbitibiBowater to announce what the fallout would be from its merger.
When the news was finally announced in late November, it was a blockbuster; the company will close more one than one million tonnes of capacity (newsprint and other commercial printing papers).
This includes the permanent closure of two paper mills and the indefinite idling of two others in Canada. Previously idled paper mills in Lufkin, TX, and Thunder Bay (Fort William), ON, are now shut for good. As well, the idled PM 3 at the Gatineau, QC, mill will not restart.
Sighs of relief from mills that were spared the sword were evident across the continent. However, the closures are just Phase I of the company's plans. It has said that given the specific pressures in eastern Canada relative to wood availability, energy and labor, a second round of closures could take place in mid-2008.
The company has asked its Canadian union partners to re-open current labor agreements and explore ways to reduce overall labor costs.
NewPage
Another obvious choice, NewPage made headlines when it purchased Stora Enso's North American assets. The sale was completed in December 2007. In announcing the completion of the $2.556 billion financing, NewPage chairman and CEO Mark A. Suwyn, said the ability to complete the deal in a difficult credit market, "speaks well of the soundness of the business combination, quality of the management team and strength of support" that NewPage has received from its majority owner, Cerebus Capital Management.
With the deal, NewPage becomes the continent's largest producer of coated paper with capacity of 4.3 million tons/yr. It will hold 31.4% of coated mechanical paper production and 41.1% of coated freesheet. NewPage's total capacity is 5.5 million tons/yr as it also produces 920,000 tons/yr of uncoated paper and 300,000 tons/yr of specialty grades.
According to RISI's vice president, graphic paper, John Maine, capacity closure should not be an issue as coated paper markets in North America are looking at shortages in the next two years (Pulp & Paper, November 2007, p. 56).
The expanded NewPage now owns 12 mills and 26 paper machines, mostly in the US with one Canadian mill in Port Hawkesbury, NS. However, this north of the border mill houses the only newsprint machine that NewPage has. Although this machine seemed to be a likely candidate as Stora Enso had mothballed it in the past and it has come close to permament closure before, NewPage has given it new life for the moment. At presstime, NewPage announced that it would be closing machines in the US at its mills in Maine and Wisconsin and curtailing operations at other facilities. Recent work done at producing an improved newsprint seems to have paid off, despite a high Canadian dollar and declining newsprint consumption. The company recently hiked its newsprint price by $100/ton.
The company has been vociferous in its claims that Asians are dumping coated paper on the North American market. It will also lead the fight against dumping by European papermakers.
Graphic Packaging Holding Company
In July, Graphic Packaging announced a merger with Altivity Packaging, bringing together two "of the most innovative packaging companies," creating a company with combined sales revenue of $4.4 billion. Assets include 10 paperboard mills, 47 folding carton facilities and 12 multi-wall and specialty bag plants.
Expected synergies should total more than $90 million that the company expects to fully achieve by 2011. The company expects total cost savings to reach $185 million by 2011.
The new company will be headquartered in the Marietta, GA, site of Graphic Packaging's corporate offices, but says it will retain a "significant presence" in Chicago, where Altivity was headquartered.
One of the objectives of the merger is to create a company that can generate greater cash flow for debt reduction while growing a diverse product mix. The bulk of its business will be in the national market based in the food and beverage areas.
The announced merger will lead to a significant increase in industry concentration in folding boxboard markets. It could also set the stage for further consolidation in packaging markets, according to RISI vice president Ken Waghorne (Pulp & Paper, October 2007, p.64). As well, rumors abound about possible mergers in the corrugated box and containerboard markets.
However, even after the Graphic Packaging/Altivity merger is digested, ownership concentration in boxboard will not reach the same levels as that for containerboard. RISI estimates that the top five producers will own 54% of capacity compared with 67% for the top five containerboard producers
Sonoco
For once, we are out of the merger news and onto something relatively rare in the North American industry recently: an ambitious five-year growth strategy. Called Progress Forward, the plan is aimed at continuing the company's continuing profitable growth momentum. Sales have risen from $2.7 billion in 2002 to a projected $4 billion for 2007. By the end of 2012, the revenue target is $5.5-$6 billion. It wants to improve EBIT margins from 9.3% to 11% and increase return on net assets employed from 11% to 12.5%.
Chairman and CEO Harris E. DeLoach, Jr. says the sales growth strategy includes increasing organic sales, expanding geographically in response to customer and market needs, developing new products and services, and making strategic acquisitions.
It also plans to change its consumer: industrial: sales ratio so that it is more weighted in favor of consumer markets. It is currently 51:49 consumer, but Sonoco hopes to increase the consumer share of market to 60%.
The company introduced a number of award-winning packaging innovations in 2007 and plans the keep the momentum going in 2008. The products already on the market or planned for the new year include flexible, rigid paper and plastic containers, ends and closures and packaging services.
Irving
One of the most intriguing bits of news to come out of Canada recently was the report of the pending breakup of the Irving empire.
In a family-owned company that takes the word "private" to new heights, little news usually emanates from its St John, NB, headquarters. However, it seems that the three septuagenarian brothers have decided to break up the family conglomerate. The decision would give each branch of the family direct control over the businesses they manage under their father's (K.C. Irving) original trust provisions.
J.K. Irving and his son Jim control J.D. Irving, which includes the forestry, pulp, paper, wood products and lumber assets. The other two brothers, Arthur and Jack, and their sons control Irving Oil and the construction, steel, engineering business. As well, the company has extensive media holdings, a food processing business and shipbuilding facilities.
The split is being caused by the diverging financial needs of the main business units, which although dominant in New Brunswick, are relatively small in the global scheme of things. Irving Oil is said to want to build a second refinery in St. John that could cost upwards of $8 billion. The forest products assets are valued at about $1 billion.
Pulp & Paper magazine is FREE to qualified subscribers. Click here to find out more.
