Pulp & Paper Canada
February 29, 2000
By Pulp & Paper Canada
MONTREAL, QC -- Abitibi Consolidated Inc. has acquired newsprint rival Donohue Inc. in a stock deal that will likely reduce newsprint production and induce more mergers in the industry. The combined company will have $11-billion in assets with 25 paper mills in Canada, the United States and Britain, as well as one-third interest in four mills in South Korea, Thailand and China. Total newsprint production will be 6.3 million tonnes per year (Mt/y), making it almost twice as big as its nearest rival, Stora Enso of Sweden, a 3.2 Mt/y producer. The Abitibi-Donohue entity will control 34% of the North American newsprint market and 16% of the worldwide market. With such a predominant player, many forestry analysts predict other deals happening soon. "It wouldn't surprise me that other major producers would want to be equal in size [to Abitibi]," said Robert Duncan, an analyst with Toronto-based Research Capital Corp. Possible names include Bowater Inc., North America's second-largest newsprint producer, Fletcher Challenge Canada Ltd., Alliance Forest Products Inc., Pacifica Papers Inc. and Norway's Norske Skog

As the offer stands, Abitibi will pay $42 for each Donohue share: the per share total amounts to $11 in cash and $31 in Abitibi stock. The deal came about when publishing giant Quebecor Inc., which holds a 19.6% equity and 63% voting interest and is Donohue's largest shareholder, agreed to sell its shares for $291 million. If the deal goes through, Quebecor retains 11% of the merged company. When Donohue's $1.3-billion debt is factored in, the deal's value is $7.1 billion.

John Weaver, Abitibi president and chief executive officer, summed up why he made the offer: "We believe that this combination is far and away the best consolidation opportunity in our industry." He added that the purchase will transform his company into a globally competitive low-cost newsprint producer. The deal will result in the merged firm reducing newsprint production by 515 000 tonnes in 18 months, or a reduction of about 3.4%. When combined with last year's production curtailment of 450 000 tonnes, the total removed from production will hit almost one million tonnes. Thus, newsprint producers should be giddy in expectation of higher prices. Abitibi, Donohue and Bowater announced price hikes of $50 (US)-a-tonne late last year, which are scheduled to take effect on April 1. As is common with such transactions, cost savings are expected -- in this case $250 million -- through the elimination of duplicated services like purchasing, transportation and administration. There is likely to be mill shutdowns, too, but none have yet been announced. Donohue president and CEO Michel Desbiens becomes chairman of the new company, and Weaver its president and CEO.

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