Open Enrollment | Subscribe to Printing Impressions HERE
Connect
Follow us on
Advertisement
 

Sappi to Acquire Potlatch Coated Paper Business

May 2002
JOHANNESBURG, SOUTH AFRICA—Consolidation in the paper industry continued in March when Sappi Ltd. announced it had reached an agreement to acquire Potlatch Corp.'s coated fine paper business.


The deal, worth $480 million and subject to regulatory approval, includes Potlatch's Cloquet, MN, pulp and paper mill. As part of the transaction, Potlatch will also cease production at its Brainerd, MN, coated paper mill and bear the related costs. The Brainerd mill produces 140,000 short tons per year.

With the deal, Potlatch exits the coated printing papers business. In 2001, Potlatch's printing papers segment reported a loss of $36.7 million on revenues of $464 million.

Value Generator

Sappi expects to generate significant value for its shareholders through the acquisition; by 2003, the company expects earnings per share accretion of 20 cents.

"The purchase provides a compelling opportunity to advance both Sappi's strategic and financial agendas," notes Eugene van As, Sappi chairman. "The acquired businesses are an excellent fit with our existing operations in North America and Europe. A complementary product line and customer base should allow Sappi to capture substantial synergies immediately.

"The integration of the Potlatch assets and transfer of the business from the Brainerd mill to our existing mills in North America and Europe will materially strengthen the competitiveness and profitability of our entire North American operations," he adds. "We are highly confident that the $480 million investment will quickly generate returns that significantly exceed our cost of capital."

van As notes that a $525 million pulp mill with a design capacity of 450,000 short tons per year was commissioned in 2000 at the Cloquet location. Two paper machines and an off-line coater are also in operation there.

"This is one of the few machines in the U.S. that can produce European style, triple coated paper with minimal investment," van As says.

According to L. Pendleton Siegel, chairman and CEO of Potlatch, selling the coating papers business is part of a strategic realignment of company resources to increase shareholder value by focusing on high-upside growth businesses. Those include natural resource, wood products and consumer tissue businesses.

Proceeds from the sale will reportedly be used to pay down debt, strengthen Potlatch's balance sheet and provide capital for high-return investments in its other business lines.

The sale also reflects recent changes in the dynamics of the global market for coated printing papers, contends Siegel. "The continuing strength in the dollar in relation to other currencies in recent years and the ongoing industry consolidation have created a challenging competitive environment in the coated printing papers business, particularly for smaller, domestic producers," Siegel says.
 

Companies Mentioned:

COMMENTS

Click here to leave a comment...
Comment *
Most Recent Comments: