Merger to put company at $3.3B
Thursday, August 24, 2006 No job losses or mill closings are expected in the merger. SEATTLE (AP) — Forest products giant Weyerhaeuser Co. is combining its fine-paper business with Canadian paper maker Domtar Inc. in a deal the companies valued at about $3.3 billion. The agreement allows Weyerhaeuser to focus on areas that could have more growth pontential and gives Domtar the heft it could need to be more competitive. "The new Domtar is in a better position to compete than either company could on its own," Steven R. Rogel, Weyerhaeuser's chairman, president and CEO, said Wednesday in a conference call with analysts. The new company is expected to be the largest fine-paper company in North America. Fine paper, typically used for things like books, brochures and printer and fax machines, is still a familiar sight in most businesses and homes. But as more and more documents — such as legal rulings and financial reports — have gone electronic, analyst Paul Latta with McAdams Wright Ragen said many have begun to think of it as a sector in decline. "It's just not really a growth area, especially in contrast to the timberland business or even the packaging business," Latta said. But for Domtar, Latta said the consolidation could help the company negotiate better prices and otherwise be more competitive. New business The new company will have 14,000 employees and will be led by Raymond Royer, Domtar's president and chief executive. But Weyerhaeuser shareholders will get a 55 percent stake in the new company and Weyerhaeuser will nominate a majority of its 13-member board. Harold MacKay, an adviser to Weyerhaeuser's board, will chair the new company's board. The new company will include executives from Weyerhaeuser's paper operations and Domtar The companies said the deal is expected to generate about $200 million in annual "synergies" — cost savings and extra revenue — within the next two years, because the combined operation will be able to save money on things like transportation, logistics and purchasing. Weyerhaeuser shares rose $1.32, or 2.2 percent, to close at $61.35 on the New York Stock Exchange. Its shares have traded in a 52-week range of $54.25 to $75.50. In an interview with The Associated Press, Royer said he did not expect any job cuts or mill closures as a result of the transaction. About 5,300 Weyerhaeuser employees will be moved over to the new company. Weyerhaeuser said it will distribute ownership of the fine-paper business and related assets to its shareholders in either a spin-off or split-off transaction before the combination of the businesses. Under the agreement, Weyerhaeuser will receive a $1.35 billion cash payment. Weyerhaeuser shareholders will receive 55 percent of the new company's stock. Weyerhaeuser said that stake was worth nearly $2 billion at Domtar's closing price Tuesday. Domtar stockholders will own a 45 percent stake in the new company. Domtar, with 8,500 employees, is currently the third-largest producer of uncoated freesheet paper in North America. It is also a leading manufacturer of business papers, commercial printing and publication papers, and technical and specialty papers.