DOMTAR MERGER WITH WEYERHAEUSER CLEARED

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Domtar merger with Weyerhaeuser unit cleared
Canada’s Competition Bureau won’t challenge closing
January , 2007 The proposed merger between Domtar Inc. and a division of Weyerhaeuser Co. is exactly what the Canadian forestry industry needs, said an analyst with PricewaterhouseCoopers.“We’ve got to get our costs down and in order to do that you have to have the scale and some of the other synergies that come from these types of deals,” said Craig Campbell, Canadian leader of the firm’s forest and paper practice.On Tuesday Canada’s Competition Bureau announced it will not challenge the closing of the proposed US$3.3-billion merger of forest-products producer Domtar with the fine paper and related business division of U.S. based Weyerhaeuser.“We are very pleased with these decisions from the Canadian and U.S. authorities,” said Raymond Royer, Domtar’s president and chief executive officer in a release.“This was an essential condition for the transaction. This major step towards closing now enables us to seek approval from our shareholders and start developing a plan to better meet the needs of customers across North America in a competitive marketplace,” added Mr. Royer.Mr. Campbell said competition within the North American market is not a serious problem for Canadian companies.“Companies need to get bigger,  not just in Canada but around the world,” he said.There has been a lot of recent merger and acquisition activity being conducted by Canadian forestry companies such as Canfor Corp. Tolko Industries Ltd. West Fraser Timber Co. Ltd., he said.“They have all been doing deals and the Competition Bureau has asked them to divest assets in most of those deals,” he said.That increase in activity, which is being mirrored across North America and Europe, is partially in response to increased output from the Southern hemisphere, where increased production at lower costs is putting pressure on markets, he said.“I think the important thing is this transaction makes sense when you look at the assets coming together,” he said. Creating a larger portfolio of mills and assets will make it easier to  evaluate the business from a cost and closure point of view, he said.Don Roberts, managing director with CIBC World Markets, said the deal wasn’t a surprise in a industry that has seen an increase in consolidation in the uncoated free sheet market, the paper you put in your photocopier.This type of cross border deal could be considered  strategic imperative for organizations in the B.C. interior looking to expand their geographic footprint into the U.S., he said.First it provide a way for Western companies flush with cash a way to get around looming tariffs. It also affords them the ability to grow around the impending reductions in the timber harvest levels, caused by the pine beetle, in the B.C. interior, he said.In December, Domtar announced its intent to sell its 50% stake in Norampac Inc. to Cascades Inc. The sale, Norampac is Canada’s largest container board manufacturer, is expected to raise about $560-million and will allow Domtar to strike about $185-million of debt. 

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January 15, 2007 at 10:55 AM