Weyerhaeuser “Fine Paper” Division Merges with Domtar

Federal Way, WA-based forest products giant Weyerhaeuser Co. today announced plans to combine its “fine paper” business with Canadian paper products company Domtar in a $3.3 billion deal that will create North America’s largest manufacturer of uncoated freesheet paper. Weyerhaeuser’s fine-paper division also produces coated groundwood and book-grade papers.

The deal gives Weyerhaeuser shareholders 55% ownership in the new company—which it is currently calling “the new Domtar”–and includes a $1.35 billion cash payment to Weyerhaeuser. The cash payment, plus the stock valued at the closing price of Domtar stock on Aug. 22, results in a transaction value of $3.3 billion before considering resulting synergies. The transaction, which has been approved by the boards of directors of both companies, is expected to close in the first quarter of 2007.

Michael Wade, director of sales and marketing at Deerfield, IL-based distributor Wade Paper Corp., says Weyerhaeuser indicated earlier this year that it wanted to “do something” with the business. “But I can say that it was a bit of a surprise,” Wade says. “However, this seems to be a trend for large forest product companies to sell off their fine-paper divisions. International Paper, MeadWestvaco, and Cascades have all made similar moves.”

With 8,500 employees, Domtar is currently the third-largest producer of uncoated freesheet paper in North America. Domtar manages forestland in Canada and the U.S. and produces lumber and other wood products. Meanwhile, Weyerhaeuser earned $733 million on sales of $22.6 billion in 2005.

Weyerhaeuser president//CEO Steve R. Rogel said in a statement that the “new Domtar” would generate approximately $200 million in annual synergies within the next two years. “I’m pleased that Weyerhaeuser shareholders will have the opportunity to participate in value created by this transaction,” he said. “It’s also good news for our employees in these businesses because the combination of our assets with those of Domtar creates a stronger leader in the paper market.”

According to the agreement, Weyerhaeuser will distribute ownership of the fine-paper business and related assets to Weyerhaeuser shareholders in either a spin-off or split-off transaction. Domtar president/CEO Raymond Royer will head an organization of 14,000 employees with a management team of executives from Weyerhaeuser as well as Domtar. The new company will be based in Montreal, while its operations headquarters will be in Fort Mill, SC.

Weyerhaeuser manufacturing assets included in the combination include eight paper mills and associated pulp mills (Dryden, Ontario; Hawesville, KY; Johnsonburg, PA; Kingsport, TN; Bennettsville, SC.; Plymouth, NC.; Prince Albert, Saskatchewan; and Rothschild, WI); 14 converting centers; a market pulp mill in Kamloops, British Columbia; a coated groundwood mill in Columbus, MI; and softwood lumber mills in Big River, Saskatchewan; and Ear Falls, Ontario.

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