Sappi Signs Deal to Buy Potlatch Coated Business
Paper giant to gain big plant in Minnesota; Potlatch to focus on wood, tissue products.
Staff -- graphic arts online, 4/1/2002
Sappi Limited, which claims to be the world's leading producer of coated fine (groundwood-free) paper, with principal holdings in North America, Europe, and Africa, has agreed to acquire Potlatch Corporation's coated fine paper business and its pulp and paper mill in Cloquet, Minn., near Duluth, for $480 million in cash.
As part of the transaction, Potlatch is to cease production of coated paper at its mill in Brainerd, Minn., where it had been producing up to 140,000 short tons per year (tpy). The mill is expected to close in May.
Sappi, which plans to transfer this production to its existing mills in North America and Europe, projects that the integration will generate total annual pre-tax savings and synergies of at least $120 million.
Eugene van As, Sappi chairman, said the purchase advances both Sappi's strategic and financial agendas. He added, "It is accretive to earnings immediately, the return exceeds our cost of capital, and the investment is more earnings enhancing than buying back our own shares."
He noted that the Cloquet facility has expansion potential. It now includes a $525 million pulp mill commissioned in 2000 that's designed to accommodate 450,000 tpy; the mill also operates two paper machines and an off-line coater, said to be one of the few machines in the United States that can produce European-style, triple-coated paper with minimal investment.
Imported coated sheets are said now to account for nearly half of the sheetfed market in the U.S.
Kathy Walters, chief executive of Sappi Fine Paper North America, Boston, said, "Potlatch produces excellent and well-known paper grades, in particular McCoy and Vintage, and is well known in the American designer and print community."
She said the combined operation will increase Sappi's share of coated fine paper sales in the U.S. to 30%.
Seattle-based Potlatch, whose printing papers segment reported a loss of $36.7 million on revenue of $464 million in 2001, will leave the coated printing papers business, which traces its origin to 1898 with the founding of Northwest Paper (Potlatch acquired Northwest Paper in 1964). Now, Potlatch will concentrate on wood products (Potlatch owns 1.5 million acres of timberland) and the consumer tissue business.
Worldwide, Sappi presently operates 18 pulp and paper mills in eight countries and serves customers in 100 nations.
