Mega merger to slash costs: Tembec, Domtar's joint venture expected to save $40M annually.

Tembec and Domtar announced June 19 they are combining forces in Ontario and Quebec.

The new-and yet-to-be-named joint venture will bring together their timber and softwood (spruce, pine and fir, (SPF)) lumber operations in the provinces of Quebec and Ontario. The joint venture will also market the softwood lumber manufactured by Tembec at its SPF sawmills in British Columbia and by Domtar at its Lebel-sur-Quevillon sawmill.

Frank Dottori, CEO of Tembec, is to be chairman of the board for the new company, while Richard Garneau, Domtar's senior vice-president for forest products, is to be president.

"This merger will make this the second-largest lumber company in Canada," says Dottori. "That's a good thing because, in this business, size really does matter. The other good thing is that it will allow us to cut costs by $30 to $40 million per year.

"In this market, all lumber companies are suffering," says Dottori. "We need to be cost effective to put us on a good, solid platform for the future."

Domtar manager of regional communications Richard Descarries says that the merger will allow the new company to take advantage of greater economies of scale.

"It's a tough market," Descarries says. "A smaller company is competing at less advantage because it can't take advantage of those economies of scale in operational costs."

"We will be taking the best of the two companies and making one strong company," says Dottori. In Ontario the merger will meld Domtar and Tembec operations in such communities as Cochrane, Hearst, Kapuskasing, Kirkland Lake, Chapleau, Elk Lake, Nairn Centre and White River.

He says that both companies had the choice of either following the current market conditions through to their conclusion or to take proactive steps to increase efficiency and cost effectiveness for both companies.

"The winners are the people who take the first steps ahead of the wave," Dottori says. "We will be there, up front, establishing strong competition. But these things don't come easy."

Comparing the merger to a marriage, Dottori says, the two companies are just in the stage of' announcing the engagement.

"We have 90 days before the wedding," Dottori says.

The deal is expected to be complete by the end of September.

A best practices committee has been set up to determine how the merger of operations will take place and what sort of organizational structure it will have.

What this will mean in terms of jobs is too early to say, says Descarries.

"We will have a better sense in the fall," Descarries says. "There are many ways to reduce costs without cutting jobs. For now, it's business as usual. As we get closer to the end, we will have a clearer picture."