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Paper Outlook--Another Notch in the Market's Belt

June 2000
Industry consolidation continues, paper availability tightens and prices rise—but not by much.


BY CAROLINE MILLER


The April announcement that International Paper (IP) was upping the ante by making a $7.3 billion offer to purchase Stamford, CT-based Champion International came as no surprise to many in the printing industry.

"We were not surprised by International Paper's bid for Champion," remarks Tom Hayes, vice president of marketing and sales for R.R. Donnelley Paper Services. "When StoraEnso paid a higher market premium for Consolidated than what UPM was paying for Champion, it was almost a fait accompli."

International Paper's offer exceeds UPM-Kymmene's February move to acquire Champion. Based in Finland, UPM's all-stock offer of $6.6 billion dropped to about $5 billion after a 20-percent slide in UPM's share price. In the end, UPM-Kymmene chose not to submit a counter offer. International Paper hopes to close the deal in June.

However, this latest move towards consolidation will not be the last in the paper industry, according to Mark McCready, senior analyst with Jaakko & Poyry Group, a consulting and engineering firm for the forest industry. He expects to see a trend toward further consolidation. "The North American paper industry is still highly fragmented, much more so than the European paper industry."

McCready predicts consolidation will bring efficiencies to paper producers, such as helping to rid the industry of redundancies and inefficient machines. "It may or may not reduce price volatility; it depends on just how consolidated the market becomes." Still, some printers have concerns as to how consolidation will affect them in the future. "Fewer mills will obviously mean changes in the future. It is my hope that quality standards are not compromised," warns Debbie Creel, CFO of Las Vegas-based Creel Printing.

While the consolidation saga continues to take center stage, the rise in paper prices—and the availability of certain grades—still garners most of the commercial printing industry's attention.

Printers continue to report that prices are increasing, and that paper is available, according to Andy Paparozzi, chief economist for the National Association of Printing Leadership (NAPL). Each month, the association surveys printers on the availability and pricing of various grades of paper. In March, 81.4 percent of those polled indicated that prices were higher in comparison to prices three months prior. And 83.5 percent said that paper is still available.

"The price increases are substantial and well-established," Paparozzi reports. "However, the key thing here is that paper is still readily available, and that is what we watch very, very closely,"
 

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