Abitibi-Consolidated ( ABY) and Bowater ( BOW) agreed to merge in a deal they said creates an $8 billion paper tiger.

Each common share of Abitibi-Consolidated will be exchanged for 0.06261 common share of AbitibiBowater, and each Bowater common share will be exchanged for 0.52 common share of AbitibiBowater. The exchange ratio will result in 48% of AbitibiBowater being owned by former Abitibi-Consolidated shareholders and 52% of AbitibiBowater being owned by former Bowater shareholders.in an all-stock merger of equals.

The companies said the combination will create a new leader in publication papers -- an operationally and financially stronger company better able to meet changing customer needs, compete more effectively in an increasingly global market, adapt to lower demand for newsprint in North America, and deliver increased value to shareholders.

AbitibiBowater will have pro forma annual revenues of $7.9 billion, making it the third largest publicly traded paper and forest products company in North America and the 8th largest in the world. The current combined enterprise value of the two companies is in excess of $8 billion.

AbitibiBowater's headquarters and executive office will be located in Montreal, Quebec, with a U.S. regional manufacturing and sales office in Greenville, South Carolina. The company, which will be incorporated in Delaware as the new parent company, will apply to list its shares on the New York and Toronto stock exchanges.

The combination is expected to generate approximately $250 million of annualized cost synergies from improved efficiencies in such areas as production, selling, general and administrative costs, distribution and procurement. These synergies are in addition to cost saving initiatives already in process at both companies.