Pulp and paper assets under new management.

The pulp and paper industry ownership base is changing and consolidating, but is also becoming more diversified. This trend not only applies to pulp and paper assets, but to forest ownership; mechanical wood assets; and suppliers of chemicals, consumables, and equipment. Private equity companies have entered the forest industry sector in a major way. Some of these firms, such as Madison Dearborn Partners, have large holdings in pulp and paper companies. For example, Bay State, Buckeye, Forest Products Holdings LLC (d.b.a. Boise Cascade), Graphic Packaging, Jefferson Smurfit, and PCA all are owned at least in part by private equity companies.

Private investors and private equity companies such as Koch Industries Inc., Mercer International, and Cerberus Management LP are targeting the pulp and paper industry. Private equity companies with a presence in the paper industry also include Apollo Management, which bought Eastman Chemical's coatings, adhesives, and specialty polymers and inks division in 2004. Nalco was acquired by Blackstone in 2003 and went through an initial public offering (IPO) in late 2004.

OWNERSHIP TRENDS

Looking back three years, one can identify several ownership trends:

* Management buyouts (Inland/Pine Bluff, Curtis/Dunn Paper)

* IPOs/spin-offs (Neenah Paper, Fraser Papers)

* Large diversified paper and board companies divesting non-core divisions or acquiring to expand core businesses (Georgia-Pacific, K-C, Brascan, Schweitzer-Mauduit, Brant-Allen, MeadWestvaco, Canfor, International Paper, Wausau, West Fraser Timber, Mohawk Paper Mills, Fraser Papers, Smart Papers)

* Investor groups (LaPointe Partners Inc.).

Several key deals have targeted market pulp and coated papers. Koch acquired G-P's Brunswick, Georgia and New Augusta, Mississippi, mills. The capacity of these mills is 1.3 million metric tons/yr of market pulp, which makes Koch Cellulose LLC the third biggest producer in North America after Weyerhaeuser and International Paper.

The voracious appetite of the Chinese market for fiber and pulp led to containerboard producer Lee & Man securing parts of its fiber supply--unbleached and bleached market pulp--by acquiring Samoa Pulp in California. The capacity of the mill is about 0.2 million metric tons/yr. In addition, existing pulp producers are expanding via acquisition. The most recent examples are Canfor, which bought Slocan Forest Products Ltd. LaPointe Partners Inc. has acquired the Port Alice pulp mill.

In the coated papers market, Cerberus is in the process of acquiring MeadWestvaco's mills in Chillicothe, Ohio, Escanaba, Michigan, Luke, Maryland, Rumford, Maine, and Wickliffe, Kentucky. The combined mill capacity is 1.2 million tons of coated freesheet and 0.7 million tons of coated groundwood papers. This would make Cerberus the second biggest producer of coated freesheet and fourth largest producer of coated groundwood in North America. Cerberus, which has an investment portfolio covering airlines to fast food, also recently acquired G-P's building products distribution business.

Ownership changes in tissue have occurred largely outside North America as Kimberly-Clark secured its ownership and market position in Latin America. Many fine paper assets changed hands--some twice within a couple of years (such as the Brainerd, Minnesota mill). Mohawk Paper Mills bought International Paper's Hamilton, Ohio high-end text and cover business. Within this same grade group, Smart Papers bought Fraser Paper's Park Falls, Wisconsin operations and Wausau Paper took over the Brainerd mill.

NEW PLAYERS, NEW RULES?

The impact of these ownership changes remains to be seen. When industry players buy or sell assets within an industry, the new company typically behaves essentially the same way as its predecessor had. However, newly created companies--such as shuttered mills reopened with new management like American Eagle--or mills purchased by private equity companies may choose to behave differently. These mills bear watching as they, perhaps, have more of an opportunity to develop a new paradigm for the forest products industry.

NEW NAME                   OLD NAME

AMERICAN EAGLE             WESTVACO, TYRONE MILL
DELTA NATURAL KRAFT        TEMPLE-INLAND, PINE BLUFF MILL
DUNN PAPER                 CURTIS PAPERS
KATAHDIN PAPER             GREAT NORTHERN PAPER
LINCOLN PAPER AND TISSUE   LINCOLN PULP AND PAPER
MISSOTA PAPER              POTLATCH, BRAINERD MILL
WHITE BIRCH PAPER PAPIERS  STADACONA

Results of ownership changes.

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of marketing and consulting services. Contact Soile Kilpi by email at [e-mail], or by phone at [phone].