WE CAN EXPECT MORE MERGERS
February 1, 1999 By Pulp & Paper Canada
What we are seeing is not the same merger mania of the 1970s, when conglomerates were formed. Today, we are seeing like-minded companies joining forces, what the financial markets call pure players –…
What we are seeing is not the same merger mania of the 1970s, when conglomerates were formed. Today, we are seeing like-minded companies joining forces, what the financial markets call pure players — companies focused on a niche.
That explains why companies like Vancouver-based MacMillan Bloedel Ltd. and Toronto-based Noranda Forest Inc. spun off companies in which they had a low market share (these being Pacifica Papers Inc. and Nexfor Inc., respectively). Rather than continuing to ring up losses, they are now rebuilding by concentrating their resources on a niche in which they can add value.
In a possible scenario, the world’s top newsprint producers might join forces to increase their market share. Pulp producers might do the same. At the moment, because the market is fragmented — with too many companies — “it is volatile,” says PricewaterhouseCooper’s Campell, referring to the cyclical prices common in the last few years.
Supporting the call for more mergers is David Smith, president of PwC Canada. “[The] forest industry worldwide market totals $750 billion (US) annually, with the largest company claiming only $20 billion (US) of that pie,” Smith says, referring to International Paper’s annual revenues in 1997.
Within the next two or three years, there will be fewer Canadian companies. “By 2001, the top-performing forest products companies will probably have reaped the benefits of consolidation, globalization, specialization — and the result will be fewer, more significant players,” Smith says.
Campbell says that Canadian companies, which are much smaller than their American and Scandinavian counterparts, will likely have to unite to become bigger and more prominent on the world stage.
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