CONSOLIDATION: EXPECT MORE MERGERS, ANALYSTS

Pulp & Paper Canada
December 31, 1998
By Pulp & Paper Canada
MONTREAL, QC -- Slow demand in the paper market will force more closures of plants, which will result in some gradual improvement in pricing, said analyst Reid Carter of First Marathon Securities Inc. At the PricewaterhouseCoopers forest industry conference held in November, analyst Richard Kelertas of Bunting Warburg Inc. predicted industry consolidation is likely in Canada. He said that two or three more forest products companies are likely to disappear by merger or takeover. The reason?: commodity prices that are depressed by overcapacity and the Asian crisis, a situation that is expected to last another year or 18 months.

But all is not bleak. The solution lies in thinking differently, Kelertas said: "[Producers] that have moved away from the old bulldozer approach, cut costs, focused their markets and created real partnerships with their workers will be the ones to survive." In the interim, Canadian producers are benefiting from the low exchange rate ($1 US is equal to $1.55 Cdn), which makes it more expensive for US competitors to produce. Consequently, we might see more US companies looking to buy undervalued Canadian companies, as we saw with Greenville, SC-based Bowater's acquisition of Montreal-based Avenor Inc.

As well, Kelertas foresees that both Canadian and US market leaders will make more links with Asian producers, through marketing pacts and asset swaps, to increase their global business. It seems that globalization is still king.

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