Paper firms merge

COLUMBIA, S.C. – Canada’s Abitibi-Consolidated Inc. and Bowater Inc. of South Carolina said Monday they will combine in an all-stock deal that their CEOs said should create a more powerful global competitor despite a declining U.S. newsprint market.

The combined company would be known as AbitibiBowater Inc. and would have annual revenues of about $7.9 billion and a market capitalization of about $2.4 billion.

The combined company should be able to cut annual costs by about $250 million as a result of efficiency in areas such as production, selling, general and administrative costs, distribution and procurement, the companies said.

“In order to strengthen both of our companies, this deal brings us both together and moves us to the next plateau” with a better mix of products and cutting costs, Abitibi Chief Executive John W. Weaver said.

Bowater CEO David J. Paterson said in an interview that he and Weaver have been working on the deal for about three months. He said he and Weaver got to know each other shortly after he took his job at Bowater in May. Both companies were looking at “options for growth,” he said.

“We did our homework. We did our due diligence,” Paterson said. “We felt this was the right one to pursue.”

Weaver will become the executive chairman of AbitibiBowater and Paterson will serve as president and CEO.

AbitibiBowater’s product lines will include newsprint, uncoated and coated mechanical papers, market pulp and wood products. It will also be one of the world’s leading consumers of recycled newspapers and magazines.

The combined company will own or operate 32 pulp and paper facilities and 35 wood product facilities located mainly in eastern Canada and the southeastern U.S.

The companies said it will be the third largest paper and forest products company in North America.

Paterson said the anticipated savings “are not predicated on any mill closures.”

“It buys them time,” Kevin Mason, an analyst with Equity Research Associates, in Vancouver, British Columbia, said.

But the “broad structural issues in the industry are still the same,” Mason said. The companies may be stronger merged, but the industry’s woes continue: too much capacity, declining newspaper newsprint consumption and the growing threat of competition from China.

The industry has been closing mills and merging and more of that is expected, said newspaper industry analyst John Morton.

The deal Monday likely means there will be “a lot of consolidation and probably some plant closings,” Morton said.

The companies said the combined company would be “operationally and financially stronger” and could compete better globally while adapting to lower demand for newsprint in North America.

Shares of both companies soared on the news. Bowater shares climbed $5.20, or 24 percent, to close at $27.44 in trading on the New York Stock Exchange, while Abitibi’s U.S. shares rose 69 cents, or 26 percent, to close at $3.33.