Paper makers form merger

August 24, 2006|By Bloomberg News

SEATTLE -- Weyerhaeuser Co. abandoned plans to sell its paper division yesterday, saying it will merge it with Canada's Domtar Inc. in a $3.3 billion transaction that will create North America's largest maker of paper used in facsimile and copying machines.

Weyerhaeuser's shareholders will get a 55 percent stake in the new company. The American firm also will get a majority of the 13-member board, plus $1.35 billion in cash.

The new company will have 14,000 employees, be based in Montreal and will be led by Raymond Royer, Domtar's president and chief executive officer.

The merger will generate annual savings of as much as $200 million for the new company, which will have about $6.5 billion in annual sales.

The deal is part of Weyerhaeuser's effort to unload assets that led to a $580 million first-quarter loss and forced CEO Steven R. Rogel to shut plants and cut jobs.

Weyerhaeuser's shares climbed $1.32, or 2.2 percent, to close at $61.35, while Domtar's stock fell 16 cents, or 2.3 percent, to $6.71. Both trade on the New York Stock Exchange.

"The status quo wasn't palatable for Weyerhaeuser or Domtar," said Don Roberts, an analyst at CIBC World Markets in Ottawa, who has a "sector perform" rating on shares of both companies. "Weyerhaeuser would have liked to have sold the business. Domtar couldn't afford to buy it."

Forest-products companies have struggled to boost their stock because of low paper and lumber prices, excess production capacity and increasing costs for raw materials, natural gas and shipping. Those factors have led to an increase in mergers and acquisitions.

"We have investigated every conceivable form of transaction and spoke with many players," Rogel said in a telephone interview. "This transaction we selected to do together with Domtar was by far the best transaction."

Weyerhaeuser had a record loss in the first quarter after a $746 million reduction in the value of the fine-paper unit, which Rogel said in April the company might sell or close.

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