Georgia-Pacific Bids for Fort James
Georgia-Pacific Corp., better known for its forest and building products, moved Monday to become the world’s largest tissue-products manufacturer with a planned $11.2-billion acquisition of Fort James Corp.
The deal is the latest in a long string of merger plans in the paper and forest-products industries in recent years. But like many of the other transactions, this one failed to generate much enthusiasm on the part of investors, despite the promise of cost savings: Georgia-Pacific’s shares (ticker symbol: GP) fell $2.53 to $26.09, just above their 52-week low.
Under the agreement, Atlanta-based Georgia-Pacific will pay about $37 in a mix of cash and stock for each share of Fort James and also will assume about $3.5 billion of Fort James debt.
Fort James shares (FJ) jumped $8.44 to $33.
Georgia-Pacific will buy all outstanding shares of Fort James for $29.60 a share in cash plus 0.26 shares of Georgia-Pacific stock.
Georgia-Pacific’s existing tissue products, which include Angel Soft bathroom tissue and Sparkle paper towels, are also-rans compared with Fort James’ brands. Thus, the transaction addresses that shortcoming for Georgia-Pacific, and also continues a restructuring of the company, which relies heavily on a now-slowing housing market.
“Today’s actions and future divestitures are indicative of the major transformation underway at our company,” said A.D. “Pete” Correll, chairman and chief executive officer of Georgia-Pacific, which is No. 2 in the world in forest and paper products behind International Paper Co.
Fort James, based in Deerfield, Ill., is the leading tissue maker in North America. It has been struggling since it was created by the 1997 merger of Fort Howard Corp. and James River Corp. But it boasts a powerful lineup of well-known products, including Quilted Northern, Soft ‘N Gentle, Brawny, Mardi Gras, So-Dri, Vanity Fair and Dixie.
Georgia-Pacific will more than triple its U.S. tissue production if the merger goes through.
“Adding Georgia-Pacific’s low-cost manufacturing capabilities to Fort James’ strong consumer brands and nationwide marketing will result in greater efficiencies, more vigorous competition in the retail market and broader distribution of commercial products,” Correll said.
But analysts warn that the deal could face serious scrutiny by antitrust regulators.
As part of its efforts to gain approval, Georgia-Pacific said it plans to sell about 250,000 tons of tissue-manufacturing capacity for commercial markets.
The purchase is expected to add to Georgia-Pacific’s earnings after it is completed in the second half, excluding costs for goodwill, the company said.
But Wall Street continues to be suspicious of paper and forest product companies’ prospects. The Standard & Poor’s index of nine major paper and lumber company stocks has tumbled since the start of this year, and today is no higher than it was at the start of 1997.
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The Deals Keep Coming...
The paper and forest-products businesses have been hotbeds of merger activity in recent years. The 10 biggest deals in the combined industries, ranked by dollar value: *
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Date Deal value, Target Acquirer announced in millions Fort James Georgia-Pacific 7/17/00 $11,200.0 Champion Intl. International Paper 4/25/00 9,647.1 Scott Paper Kimberly-Clark 7/17/95 7,891.0 Union Camp International Paper 11/24/98 7,136.1 Stone Container Jefferson Smurfit 5/11/98 6,705.5 Consolidated Papers Stora Enso Oyj 2/22/00 5,938.0 Fort Howard James River 5/5/97 5,734.9 Great Northern Nekoosa Georgia-Pacific 10/30/89 5,014.2 Fort Howard FH Acquisition 6/22/88 4,053.3 Federal Paper Board International Paper 11/6/95 3,841.9
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... but the Stocks Struggle
Despite the takeover activity of recent years, the Standard & Poor’s index of nine major paper and lumber companies is no higher today than in 1997. Quarterly closes and latest:
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Sources: Thomson Financial Securities Data, Bloomberg News
