Mega Merchant Merger

These factors, plus the distraction that xpedx and Unisource will experience as they go through the merger, suggests that this will be a short-term positive for the remaining merchants. Unless the new company can effectively exploit its synergies, this short-term plus may become a long term plus.

Possibly more significant, this may be the beginning of a final stage in the evolution of paper merchant distribution. In the 1990’s consolidation was the rule, and mills rushed to acquire merchants. In 1991, IP acquired Leslie Paper and Dillon Paper, and later added numerous other independent merchants, creating a national presence with ResourceNet. IP changed the ResourceNet name to xpedx in 1998. Other merchants were also mill-owned: Mead’s Zellerbach Division (Zellerbach was acquired by IP in 1998), and Champion International’s Nationwide Paper Division (Champion was acquired by IP in 2000).

Unisource has its mill history as well. Unisource was spun off from Alco Standard in 1996 following the acquisition of numerous independent merchants. Great Northern’s Butler Paper Division was acquired by Georgia Pacific in 1990 and sold to Unisource in 1993. In 1999, Unisource was acquired by GP, but in 2002 GP sold 60 percent of Unisource to Bain Capital.

Limited distribution and close alliances between mills and merchants have long been the norm, whether the merchants were mill-owned, or whether the merchants had virtual "franchises." In any case, mills would only have a small number of stocking merchants in each market.

Meanwhile, Domtar was a modest-sized paper manufacturer, aligned with smaller, independent merchants rather than Unisource or xpedx. But these independents were being swallowed by Unisource and xpedx, and Domtar was vulnerable. In 2000, Domtar acquired one of these independent paper merchants, Ris Paper (now Ariva). Now, following the acquisition of four mills from GP and the fine paper business of Weyerhaeuser, Domtar is a giant in the uncoated freesheet sector, and has a strong position with the merchant giants, xpedx and Unisource, as well as with Ariva and the independent merchants. If xpedx and Unisource merge as an independent company, Ariva will be the only remaining mill-owned merchant.