Papermakers Abitibi, Bowater to combine
Paper and wood products makers Abitibi-Consolidated Inc. and Bowater Inc. said Monday they would combine in an all-stock deal that their chief executives said should create a more powerful global competitor despite a declining U.S. newsprint market.
The combined company would be known as AbitibiBowater Inc. and would have annual revenue of about $7.9 billion and a market capitalization of about $2.4 billion.
The company should be able to cut annual costs by about $250 million as a result of efficiency in areas such as production, sales, general and administrative costs, distribution and procurement, the companies said.
“In order to strengthen both of our companies, this deal brings us both together and moves us to the next plateau” with a better mix of products and cutting costs, Abitibi CEO John W. Weaver said.
CEO David J. Paterson of Greenville, S.C.-based Bowater said he and Weaver had been working on the deal for about three months.
Weaver would become the executive chairman of AbitibiBowater and Paterson would serve as president and CEO.
AbitibiBowater’s product lines would include newsprint, mechanical paper, market pulp and wood products.
The combined company would own or operate 32 pulp and paper facilities and 35 wood product facilities located mainly in eastern Canada and the southeastern U.S.
“It buys them time,” said Kevin Mason, an analyst at Equity Research Associates in Vancouver, Canada.
The companies may be stronger merged, Mason said, but the industry’s woes continue: too much capacity, declining newspaper newsprint consumption and growing threat of competition from China.
Shares of both companies soared on the news. Bowater shares climbed $5.29, or 24%, to close at $27.44, while Montreal-based Abitibi’s U.S. shares rose 69 cents, or 26%, to $3.33.
Weaver and Paterson said they would immediately begin working with regulators in the United States and Canada for a review of the deal.
Under terms of the deal, Abitibi shareholders would get 0.06 of a common share of the combined company for their shares, and Bowater shareholders would get 0.52 of a common share for theirs. The resulting mix would leave 48% of shares in the hands of former Abitibi-Consolidated shareholders and 52% with former Bowater shareholders.
