Weyerhaeuser fine-paper unit, Canadian company to merge
Forest-products giant Weyerhaeuser is combining its fine-paper business with Canadian paper maker Domtar in a deal the companies valued at about $3.3 billion.
The agreement allows Weyerhaeuser, based in Federal Way, to focus on areas that could have more growth potential — such as pulp, container board, real estate, timberlands and wood products — and gives Montreal-based 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," Steven Rogel, Weyerhaeuser's chairman, president and CEO, said Wednesday in a conference call with analysts.
The new company, expected to be the largest fine-paper company in North America, will have 14,000 employees and will be led by Raymond Royer, Domtar's president and chief executive officer. But Weyerhaeuser shareholders will get a 55 percent stake in the new company and Weyerhaeuser will nominate a majority of its 13-member board.
Harold MacKay, an adviser to Weyerhaeuser's board, will chair the new company's board.
Royer said he did not expect any job cuts or mill closures as a result of the transaction; none of the affected plants is in Washington state. About 5,300 Weyerhaeuser employees will be moved over to the new company.
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 and more documents — such as legal rulings and financial reports — have gone electronic, analyst Paul Latta with McAdams Wright Ragen said many have begun to think of it as a sector in decline.
But for Domtar, Latta said, the consolidation could help the company negotiate better prices and otherwise be more competitive.
Weyerhaeuser said it will distribute ownership of the fine-paper business and related assets to its shareholders in either a spinoff or split-off transaction before the combination of the businesses.
Under the agreement, Weyerhaeuser will receive a $1.35 billion cash payment. Weyerhaeuser shareholders will receive 55 percent of the new company's stock. Weyerhaeuser said that stake was worth nearly $2 billion at Domtar's closing price Tuesday. Domtar stockholders will own a 45 percent stake in the new company.
Rogel said Weyerhaeuser chose to structure the deal in a way that also gives shareholders ownership, in part because it is expected to be tax-free, while an all-cash deal would have been taxable.
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, and must be approved by Domtar shareholders.
Weyerhaeuser, which has in recent months closed plants and made other drastic moves aimed at pleasing shareholders, said in late April that it was considering selling the fine-paper business.
Weyerhaeuser shares rose $1.32, or 2.2 percent, to close at $61.35 Wednesday. Domtar stock fell 22 Canadian cents, or 2.9 percent, to C$7.43.
Information from Bloomberg News is included in this report.
Washington state plants won't be affected by Weyerhaeuser's plan for its fine-paper unit. Manufacturing assets that will be included in the merger with Domtar are:
Eight paper mills and associated pulp mills: Dryden, Ontario; Hawesville, Ky.; Johnsonburg, Pa.; Kingsport, Tenn.; Bennettsville, S.C.; Plymouth, N.C.; Prince Albert, Saskatchewan; Rothschild, Wis.
14 converting centers: Brownsville, Tenn.; Cerritos, Calif.; Dallas; DuBois, Pa.; Indianapolis; Langhorne, Pa.; Mira Loma, Calif.; Owensboro, Ky.; Plymouth, N.C.; Prince Albert, Saskatchewan; Ridgefields, Tenn.; Rock Hill, S.C.; Tatum, S.C., Washington Court House, Ohio.
Market pulp mill: Kamloops, B.C.
Coated groundwood mill: Columbus, Miss.
Two softwood lumber mills: Big River, Saskatchewan; Ear Falls, Ontario
Source: Weyerhaeuser
Seattle Times business staff