Finland: Major Transactions In Forest Products Industry

UPM-Kymmene of Finland and Champion International of the US agreed to merge on 17 February, 2000 creating one of the world’s largest groups in the forest products industry. The move marks industry’s first substantial cross-Atlantic merger crating a company with production facilities in North and South America, Europe and Asia. Their combined value is approximately EUR 20,5 billion; EUR 15,5 billion in equity and EUR 5,0 billion in net debt.

Under the terms of the merger agreement, UPM-Kymmene will exchange 1,99 ordinary shares of UPM-Kymmene for each outstanding share of Champion common stock. The transaction values Champion’s total equity at approximately EUR 6,6 billion, based on UPM-Kymmene’s February 16 closing price of EUR 33,80. The exchange ratio of 1,99 represents a premium to Champion shareholders of approximately 30% over the average ratio of the two stocks during past month. The transaction will be accounted for as pooling of interests and is expected to be accretive to both companies’ earnings per share in the first full year after closing.

The companies estimate that they will achieve approximately EU 330 million in synergies per year by 2002 from a combination of process optimisation resulting in lower operational costs, increased purchasing power, savings in administrative costs and logistics and world-class marketing practises. However, some analysts find the synergy estimations more or less ambitious, as the companies are largely complementary and asset sales will be difficult under the pooling terms of the merger.

The combined company will have production plants in 17 countries and sales and distribution facilities on five continents and it will be responsible for over 6,4 million hectares of forestland worldwide. Total revenues of the company will be approximately EUR 13 billion and a total papermaking capacity approximately 12,1 metric tons per year.

StoraEnso, the Finnish-Swedish forest products group announced on February 22, 2000 that it is to buy Consolidated Papers of the US for EUR 4,9 billion. The transaction will create the world’s largest producer of paper and board ahead of International Paper from US and UPM-Kymmene who recently announced a EUR 20,5 billion merger with Champion International from US.

The transaction valued at above-mentioned EUR 4,9 billion includes net debt of EUR 0,9 billion. With the total 1999 sales of EUR 12,4 billion and the total paper making capacity of approximately 15 million metric tonnes the combined enterprise will be the largest producer of paper and board by capacity world-wide.

The transaction values Consolidated Paper’s total equity at EUR 4,1 billion or USD 44,0 per share. This represents a premium to Consolidated Papers’ shareholders of 69% based on a February 18 closing price of US 26,0 and is 34% above the 52-week highest trading price of USD 32,88.

On Tuesday’s press conference the CEO of StoraEnso, Jukka Härmälä, admitted that the purchase price can now be seen as "relatively high". However, according to Härmälä StoraEnso has not acquired just "a company" but a ticket to the US markets. The long-term price of this ticket is going to be regarded as reasonable, said Härmälä. The markets were not fully convinced of Härmälä’s opinion: the StoraEnso shares fell over 15 per cent to close in Helsinki down EUR 2,0 at EUR 11,20.

The companies anticipated annual pre-tax operating synergies of approximately USD 110 million. This will be achieved through sales and logistics optimisation, better manufacturing practises and purchasing efficiencies.

For further information, please contact Pekka Lehtinen.

This article contains general information on the subject matter and shall not be relied upon for a specific case. Specialist advice should be sought with respect to any specific circumstances.