Stora Enso to Purchase  Consolidated Papers

Updated from 9:14 a.m. EST

Continuing the spate of mergers in the paper industry, Finland's Stora Enso has agreed to acquire American competitor Consolidated Papers ( CDP) for 4.9 billion euros, or $4.8 billion, in stock, cash and debt.

The new company will have the world's largest capacity to make paper and cardboard.

Investors were concerned that Helsinki-based Stora Enso is overpaying for the acquisition, as shares of the company closed down 16% to 11.10 Finnish marks in Tuesday trading on the Finnish bourse. Meanwhile, shares of Wisconsin Rapids, Wis.-based Consolidated Papers leapt 9 1/8, or 35%, to 36 1/8 in midday trading Tuesday. They finished up 10, or 38%, at 36.

Stora Enso will pay cash or shares of American depositary receipts worth $44 for each share of Consolidated Papers. That is a 69% premium to Consolidated Papers' closing price Friday of 26. The offer price also includes 0.9 billion euros in assumed net debt. After the deal is completed, Consolidated Papers shareholders will hold 15.5% of the new company.

Stora Enso expects to list its American depositary receipts by August 2000. If the ADRs have not been registered and listed by Oct. 31, Stora Enso will complete the acquisition in all cash.

Though Consolidated Papers is getting a significant premium, many analysts argue that the company deserves it. "Stora Enso's buying a very, very high-quality operation," said analyst Stephen Keane of Robert W. Baird. "They have a very state-of-the-art manufacturing facility and a who's who type of customer base." He rates Consolidated Papers a market outperform and his firm has done no underwriting for the company.

Goodwill from the transaction is expected to total around 2.8 billion euros. Stora Enso's management expects that the deal will be accretive in the first full year to cash earnings per shares and dilutive after the amortization of goodwill.

The companies anticipated annual pretax cost savings of about $110 million, to be achieved in 2002. Savings of 82%, or $90 million, should be realized by the end of 2001.

Stora Enso, formed at the end of 1998 by the merger of Finland's Enso and Sweden's Stora, is one of the two largest producers of lightweight coated and SC paper (used in magazines) and coated fine papers (used in annual reports and marketing brochures). Consolidated Papers is one of the largest producers of these products in North America.

"This acquisition marks the first major step toward the successful execution of our North American strategy," said Jukka Harmala, Stora Enso's chief executive, in a statement. "With approximately 13 tons of manufacturing capacity in Europe, and the integration of Stora and Enso behind us, the further development of our manufacturing base in North America is our highest priority."

"The focus in the industry has been buy rather than build," Keane said. "Stora Enso has only one mill in Nova Scotia and that's it. This gives them entree in North America in coated papers."

This deal comes just days after Stora Enso's Finnish rival UPM-Kymmene ( UPM) bought another American company, Champion International ( CHA), for $6.5 billion. Also last week, International Paper ( IP) said it would acquire Shorewood Packaging ( SWD) for $600 million in cash.

The consolidation comes as paper companies were severely impacted by the Asian financial crisis, when demand dropped significantly starting in late 1997. European companies took the lead then in focusing on consolidation and the prudent use of capital.

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