Rumors and reality.

We rarely discover how--or even why--a rumor gets started. Sometimes rumors are spread intentionally, sometimes by mistake. Maybe a reporter sees executives from one paper company having drinks with executives from another paper company. Bits of conversation, taken out of context, may concern a possible merger. Is it a scoop? Is the information reliable enough to report?

Sometimes rumors are completely ridiculous, sometimes they are more believable than the truth, and sometimes they eventually turn out to be true. They may be innocent, they may be hurtful, they may have expected and unexpected consequences.

In Sweden a few weeks ago, the newspaper Dagens Industri reported that Store Enso and International Paper were discussing a possible merger. Considering the various pairings, and even unpairings, the industry has witnessed in recent years, this potential merger of giants is not unthinkable. Such a merger might be premature, however. IP is still busy assimilating Champion International and tidying up its finances, analysts note. IP would probably have to pay a premium to acquire Europe's largest paper company and getting regulatory approval for the deal could be especially challenging. A combined IP-Stora Enso would have an annual capacity in excess of 30 million metric tons of paper and paperboard. It would be the dominant player in a range of paper grades, especially coated, publication, and packaging grades.

Even if such a merger were to occur, however, it could be a challenge to consummate. Although both companies are international, IP has its roots in the United States and Store Enso grew from the forests of Scandinavia. The differences may not be as striking as those that surfaced after Chrysler and Daimler-Benz merged, but there would certainly be major differences in corporate cultures and management styles to deal with.

A week after rumors of an IP-Stora Enso deal were reported, Westvaco and Mead announced that they were merging. In contrast to the rumored wedding of giants, this is a melding of mid-size paper companies at minimal cost. The new MeadWestvaco will be a global company producing coated paper and paperboard, packaging and specialty papers, consumer and office papers, and specialty chemicals. Both Mead and Westvaco have reputations as well-managed companies producing high-quality products in well-defined markets.

Earlier this year, Mead was ranked number 388 in the Fortune 500 ranking of North America's largest corporations for 2000; Westvaco ranked number 446. With combined revenues of nearly US$ 8.1 billion, together they would rank right behind R.J. Reynolds Tobacco, which was number 235. (Smurfit-Stone Container, with revenues of US$ 8.8 billion, ranked number 217.) Alone, the two companies were potential prey to be gobbled tip by some larger corporation. Together, they will be large enough to go hunting themselves.

Rumor or fact, the effect of the reported mergers was an increase in the price of shares lot Store Enso, Mead, and Westvaco, at least initially. In contrast, IP shares declined. In broader terms, the effect is that other paper company executives will start looking at how these real and potential mergers may affect their own operations and start planning accordingly. That planning may even lead to further mergers and acquisitions--and yet more consolidation within the industry.