Kimberly-Clark Seeks to Buy Scott Paper in $7-Billion Deal : Acquisitions: Merger would create nation’s No. 2 consumer products firm, threaten Procter & Gamble.

Kimberly-Clark Corp. is in talks to buy Scott Paper Co. in a stock swap valued at about $7.3 billion, a deal that would create the nation’s second-largest consumer products company, an executive close to the situation said Friday.

Kimberly-Clark makes Kleenex tissues and Huggies disposable diapers; Scott Paper’s products include Cottonelle toilet tissue and Scotties facial tissue. Together, they would generate more than $11 billion in annual revenue, creating a formidable global force in household basics and threatening the market share of leader Procter & Gamble Co., which sells Charmin and other well-known products and boasts $30.3 billion in annual revenue.

“It would really create a powerhouse in the consumer products area,” said Evadna Lynn, an analyst at Dean Witter Reynolds. “I think it would be a win-win situation for both sets of stockholders.”

The proposed deal could also result in the latest in a wave of huge mergers between companies in similar businesses that want to combine for strategic or marketing reasons and don’t see today’s high stock prices as a deterrent. Stocks of wood and paper products gained on news of the deal Friday.

The talks, first reported Friday in the Wall Street Journal, confirm months of speculation that Scott Paper Chairman and Chief Executive Albert Dunlap, who has a reputation for stripping companies and selling them, has put the Philadelphia-based firm on the block after 14 months at the helm.

Officials at Kimberly-Clark and Scott Paper declined to comment, and sources told the Journal that talks could break down. In the past, however, Dunlap hasn’t denied the possibility of a sale.

“Everything in the world, other than your family and your dog, is up for sale at the right price,” he has repeatedly told reporters.

Kimberly-Clark shares rose $2.25 to $62.50, the highest since December, 1992. Scott Paper shares climbed $1.125 to $48. Procter & Gamble shares declined $2 to $71.25.

The acquisition of Scott Paper would give Dallas-based Kimberly-Clark a long-desired foothold in Europe, where it has been held back by poor distribution.

“Kimberly-Clark clearly has consumer products that would benefit from Scott’s marketing muscle in Europe,” including diapers and feminine care and incontinence products, said Sherman Chao, an analyst at Merrill Lynch.

The combination of the two companies would also create the biggest maker of facial tissue in the world and would heighten competition in the United States, where Procter & Gamble’s towel and tissue business is strongest.

For example, Kimberly-Clark’s No. 1 Kleenex and Scott’s No. 4 Scotties facial tissues would command 50.4% of the $1.1-billion facial tissue market in the United States, with sales of $569 million, according to Information Resources Inc.

P&G;’s Puffs brand, which is No. 2, had $343.2 million in sales for the year ended April 2.

In total, the acquisition could boost Kimberly-Clark’s 1994 revenue of $7.36 billion by almost 50%, and most of the new revenue would be in consumer products, which accounts for about 81.6% of its total sales.

Kimberly-Clark’s other well-known consumer products include the Depend incontinence products and Huggies diapers, which lead the $3.7-billion U.S. disposable diaper market with a 38% share.

The possible merger raises antitrust questions about the effect on competition in the market for facial tissue.

“This is one that is going to be tricky,” said Ilene K. Gotts, a Washington antitrust lawyer who is an expert on federal pre-merger reviews. “They’re going to look very closely at facial tissue.” Antitrust regulators might press for the divestiture of some facial tissue assets, she said.

Dunlap has cut 11,200 jobs, or more than a third of Scott Paper’s work force, to save $420 million a year. He also sold off more than $2 billion in assets and plans on selling another $1 billion worth by the end of the year.

Under the proposal being discussed, Scott Paper shareholders would receive Kimberly-Clark shares that have the equivalent market value of Scott Paper shares. At Friday’s closing prices, Scott Paper shareholders would receive 0.77 share of Kimberly-Clark for each Scott share.

Scott Paper has 151.5 million shares outstanding, while Kimberly-Clark has 160.2 million.