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PAPER INDUSTRY M&A -- The Consolidation Craze

April 2002

Two years ago, it seemed as if everyone in the paper industry was switching dance partners.

Among the major acquisitions was International Paper's purchase of Champion—a deal worth nearly $7.3 billion, excluding net debt.

Then came the almost soap-opera-like saga, the Weyerhaeuser hostile takeover of Willamette Industries that dragged on for 14 months and finally ended with an agreement that called for $6.1 billion in cash, or $55.50 per share, including the assumption of $1.7 billion of Willamette debt. At $19 billion in combined sales, the deal created one of the larger companies in the paper industry.

And of recent note is the merger of Westvaco and Mead. Called a merger of equals, the new company, named MeadWestvaco, has approximately $8 billion in annual revenues and exceptional global platforms in the company's four core businesses—coated and specialty papers, packaging, consumer and office products, and specialty chemicals.

The merger has been characterized by industry analysts as a positive move and the only way the two medium-sized paper manufacturers could continue to compete in an age of giants. The merger means that MeadWestvaco reportedly becomes the second-largest manufacturer of coated paper in North America.

Will Printers Get Pinched?

While all of this M&A activity may make sense for paper mills and distributors, the question remains: What are the repercussions of this consolidation on printers?

At the time of the mergers, many industry analysts claimed that the effects of consolidation would not be felt by printers for at least two years. So, two years later, what has been the aftermath of this consolidation for printers?

According to Resource Information Systems (RISI)—an economic forecasting firm that tracks the international forest products industry—the M&A activity among paper companies has actually had a positive impact on the printing industry.

There is no question that there has been a significant impact, contends John Maine, vice president of Bedford, MA-based RISI. Consolidation has created simplification and efficiency in the industry.

"It has brought a focus on cost reduction and competition. This provides a significant cost savings to printers," he says.

It's a characterization with which Robert Collins, director of strategic sourcing for R.R. Donnelley & Sons, agrees. "From our perspective, we see consolidation as very beneficial. The reason: Obviously, we're dealing with single business units now versus multiple business units. There is a reconciliation of grades and services being offered from the suppliers. Everyone is going to benefit from that because they are going to focus and improve their sheets and their service levels. We'll know what these mills are now, and we really didn't know before," reports Collins.

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