Weyerhaeuser, Domtar to Combine Paper Business

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 potential, 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,” Weyerhaeuser Chief Executive Steven R. Rogel said Wednesday.

The new company is expected to be the largest fine-paper company in North America.

Fine paper, typically used for books, brochures and printer and fax machines, is still a familiar sight in most businesses and homes. But as more documents -- such as legal rulings and financial reports -- have gone electronic, many have begun to think that the sector is in decline, analyst Paul Latta with McAdams Wright Ragen said.

“It’s just not really a growth area, especially in contrast to the timberland business or even the packaging business,” Latta said.

But Latta said the consolidation could help Montreal-based Domtar negotiate better prices and be more competitive.

The new company would have 14,000 employees and would be led by Raymond Royer, Domtar’s president and CEO.

Weyerhaeuser would nominate a majority of its 13-member board. Harold MacKay, an advisor to Weyerhaeuser’s board, would chair the new company’s board.

Royer said he did not expect any job cuts or mill closures as a result of the transaction. About 5,300 Weyerhaeuser employees would be moved over to the new company.

Under the agreement, Federal Way, Wash.-based Weyerhaeuser would receive a $1.35-billion cash payment, and its shareholders would receive 55% of the new company’s stock. Weyerhaeuser said that stake was worth nearly $2 billion at Domtar’s closing price Tuesday. Domtar stockholders would own a 45% stake in the new company.

The deal has been approved by both companies’ boards and is expected to close early next year.

The transaction is subject to review by antitrust agencies and securities regulators in the United States and Canada. It also must be approved by Domtar shareholders.

Weyerhaeuser shares rose $1.32 to $61.35.