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IP, Stora Enso to Merge?

October 2001
STAMFORD, CT—While a report in an August edition of the Swedish business daily Dagens Industri indicated that International Paper and Stora Enso were in merger talks that would create the largest worldwide paper concern at $40 billion, it seemed unlikely to happen any time soon.

Citing unnamed sources, Dagens Industri reported that talks have been ongoing for the past year. Both IP, based here, and Stora Enso, with headquarters in Helsinki, Finland, and Stockholm, Sweden, refused to comment on the report, calling it a market rumor.

A merger between the two paper giants is an attractive concept. IP is the worldwide leader in terms of sales and output, while Stora Enso ranks fourth in sales and is the second largest manufacturer in terms of production.

Paul Herbert, president of IP’s European operations, told Reuters that he didn’t have any knowledge of merger talks with Stora Enso.

“International Paper, like every other major company, is continuously examining beneficial consolidation options, but I honestly have no knowledge of specific discussions or plans between International Paper and Stora Enso,” Herbert told Reuters.

“That would be an enormous merger,” he added.

Consolidation has been a popular avenue among the paper set. In 2000, Stora Enso acquired Consolidated Papers in a deal worth nearly $5 billion. IP was also active, plunking down more than $7 billion to acquire Shorewood Packaging. Two other leading paper heavyweights, Weyerhaeuser and Williamette, have waged a very visible battle in the former’s hostile bid attempt to take over the latter.

But from International Paper’s vantage point, the timing for a merger with Stora Enso is currently less than ideal. IP reported a loss of $313 million in the second quarter, which it attributed to costs stemming from the Champion merger, along with a weak economy and strong U.S. dollar.

The summer has been particularly tough on IP, with more than 3,500 current and future layoffs announced. It also reduced capacity, cutting containerboard production domestically by 12 percent and coated free sheet by 7.5 percent in the face of sagging paper prices.

“We think it’s totally unrealistic to expect a deal any time soon,” contends Peter Ruschmeier, senior vice president with Lehman Brothers in New York.

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