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Industry analyzing immediate impact of Scott Nonwovens auction.

Industry Analyzing Immediate Impact Of Scott Nonwovens Auction

While potential buyers line up to determine how much the attractive Scott Nonwovens operations would mean to them, the rest of the nonwovens industry is wondering about the impact of yet another sale of a major roll goods producer. With the tenth largest supplier of roll goods in the world on the auction block since early January, there is understandable concern as to whether this means only a few, very focused companies can afford to be in the nonwovens game.

Scott Paper, Philadelphia, PA, the parent company of Scott Nonwovens, set the wheels in motion early this year to divest its nonwovens business as part of a corporate strategy to focus on its core businesses. While the availability of Scott Nonwovens is in itself not a major surprise, for those not aware of the financial situation at the Scott Paper parent the timing did catch many off-guard.

Scott Nonwovens, also located in Philadelphia, was made available, according to company sources, specifically because of the financial situation at Scott Paper. The official announcement was for "a program to improve its earnings potential, strengthen its long term strategic position, reduce debt and create additional shareholder value." The program calls for selling non-strategic assets and businesses, reducing capital spending, lowering working capital and intensifying cost reduction efforts.

Nonwovens Never Did Fit In

But most of all it calls for the selling of Scott Nonwovens, a company with $130 million in worldwide nonwovens sales last year ($100 million in the U.S.). Scott Nonwovens is coming off a record sales and earnings year in 1990, a performance that perhaps persuaded Scott Paper to include it along with its less attractive foodservice and specialty paper businesses in the offering.

Perhaps the primary reason for including Scott Nonwovens is that it never did fit into the core businesses of Scott Paper. Even during a restructuring two years ago, the parent had a difficult time finding the proper place to put its nonwovens business within its corporate structure. Scott Nonwovens ended up as part of Scott Worldwide, a position that allowed it to report directly to top corporate management but which still illustrated its difficult fit within the company.

"These intended divestments continue our strategy of shedding those businesses and assets not essential to our core business," said Philip Lippincott, Scott's chairman and chief executive officer in announcing the move in early January. Scott had recently sold its Brunswick Pulp & Paper company, timberlands in Washington and its Brazilian affiliate. "By divesting these assets and businesses, we can concentrate more of our human and financial resources on our existing core strategies."

Beneath the surface were what some have termed severe financial pressures on Scott Paper, which in 1989 and 1990 invested significant capital to expand U.S. production in its quality coated printing paper business and its European and Pacific sanitary tissue businesses. Much of this capacity - in addition to the planned 1992 start of construction of a sanitary tissue mill in Kentucky - is coming on-stream at a time when its S.D. Warren coated paper business is experiencing a cyclical downturn.

"It is important that the nonwovens industry understand that Scott Nonwovens has been a successful business and the reason for the divesting is because of the priorities and finances of the paper business," explained Pricie Hanna, vice president of John R. Starr, Inc., Osterville, MA.

No Drawn Out Affair

Nonetheless, Scott Paper was not committed to investing the capital mandated to remain competitive in a highly capital and technology intensive business. Recent moves into melt blown and spunlaced technology have been a step in that direction but have yet to become significant contributors within Scott Nonwovens.

There has been no announced timing for completion of a sale, although obviously Scott Paper would like it to move as quickly and smoothly as possible. The sale was announced to the trade the second week of January and a detailed information package was readied last month.

The conventional wisdom is that Scott Paper would like the sale of its nonwovens business to be completed by mid-year. A Corovin-type scenario, where a high asking price and strict demands on the final buyer dragged the process out for more than a year, would not solve the parent's need for an immediate influx of cash to support its core businesses.
COPYRIGHT 1991 Rodman Publications, Inc.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:division of Scott Paper Co.
Publication:Nonwovens Industry
Date:Mar 1, 1991
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