As Euro Kicks in, European Market Continues Consolidation Trend
It is still too early to see what effects the introduction in January of the euro in 12 of the European Union's 15 members may have. The new currency has gained slightly against the dollar, but this is unlikely to affect exports for the moment. More on the minds of Europe's big players is meeting the demands of increasingly complex supply chains.
Low demand is putting Europe's paperboard providers to the packaging industry under pressure, as it faces far too low cost coverage in different European markets. The last two decades have seen consumer goods manufacturers, suppliers, the board industry itself and of course customers, increase in size through consolidation. The result is a folding carton industry unable to balance cost reduction with the needs of its clients.
Indeed, folding carton producers' ability to offer customer service is being limited by bundled strategic purchasing — a feature of the e-marketplace that offers reverse auctions, basing purchase of folding carton entirely on price.
Meanwhile, the French stock exchange regulator has given the go ahead for the takeover launched by Mondi International, the paper division of metals and mining group Anglo-American, for French timber firm La Rochette. On January 7, the Luxembourg-based firm said it had pledges from 33.26% of La Rochette's shareholders, among them BNP Paribas, AGF Invest, and FCP AGF Opera. At the time of going to press, La Rochette had not responded to the offer.
Acquiring packaging producer La Rochette would boost Mondi's share in the French cardboard market to around 9% from its current 2%, while bringing cost savings in research, development and logistics. Mondi has three main areas of European business — uncoated woodfree paper, industrial sacks and corrugated packaging. Last year it increased its presence in the corrugated packaging market in the UK to 16% with the packaging and paper assets of Danisco Pack UK, including two waste-based paper mills.
“We've been looking to increase our market share in France for some time and this provides a perfect fit,” said Mondi chief executive officer David Hathorn.
The move looks set to upset a takeover attempt by Spain's SAICA which announced the purchase of a 22.4% stake in La Rochette for EUR62.9 million at the end of last year. The Spanish family-owned cardboard group, founded in 1943, said it was studying the opportunity and feasibility of an industrial tie-up between the two firms. The company said in a statement that it “did not exclude the possibility of increasing its participation in La Rochette, nor of possibly taking control of it.” However, SAICA said it would not pay more than EUR10.90 a share, while Mondi is offering EUR11.60 per share.
SAICA is Spain's leader in corrugated cardboard and the fourth largest in Europe. Sales for 2001 amounted to EUR900 million.
Mondi's bid represents an 81% premium over the price of the French company's shares as of Dec 21, the day before the Spanish offer.
Willamette Tentatively Accepts US$6.1 Billion Offer from Weyerhaeuser
Willamette Industries, a large forest products company, tentatively accepted a sweetened US$6.1 billion offer from larger rival Weyerhaeuser on January 21 of this year, ending one of the longest hostile bids in recent industry history.
In the deal, Weyerhaeuser would control 7.5 million acres of timberland in the US alone and boost its combined revenue to about US$20 billion. The acquisition would place Weyerhaeuser as one of the largest paper industry titans, trailing only behind rivals International Paper and Georgia-Pacific.
In conjunction with accepting the offer, Willamette agreed to cancel its bid for Georgia-Pacific's building products unit, which would have more than doubled Willamette's size.
Earlier in January of 2002, Willamette's board rejected a US$55/share, or US$6.04 billion, bid from Weyerhaeuser. However, when 64% of Willamette's outstanding shares were tendered and not withdrawn in support of the US$55/share bid, Willamette's board reconsidered.
The 14-Month Saga
The 14-month saga, which began with Weyerhaeuser's hostile bid in November 2000 for US$43/share, worth about US$4.7 billion, was soundly rejected because, said a Willamette spokesman, the offer was “inadequate”. Weyerhaeuser issued four subsequent offers, all similarly turned down by Willamette.
Willamette has managed to resist accepting Weyerhaeuser's offers in part because of its strong protection against a hostile takeover in the form of a staggered board, which only allows for three directors to be nominated for election every year. However, in a decisive proxy case in June of 2001, Weyerhaeuser succeeded in electing three directors to Willamette's board.
Smurfit Looks Toward a Bright 2002
Now grown beyond its merger adolescence, Jefferson Smurfit and its subsidiaries have established themselves as the leaders in the containerboard business.
Demand for shares of the Jefferson Smurfit group by leading U.S. institutions in the first week of 2002 have raised hopes for a turnaround in the company. The first week of the year saw the company's share price rise to EUR2.61, an 8% rise on the end of 2001, making it the best performer of the year. Analysts in Ireland say the increasingly likely merger of Smurfit with its 33% associate Smurfit-Stone is making the company a more attractive bet to investors.
“It seems pretty clear,” said an article in the Irish Times, “that Smurfit shareholders will have the option of swapping their existing lower-rated paper for the higher-rated paper that the new merged entity will probably enjoy.”
The industry seems to be tailoring its production to demand rather than building up industries of stock. In a note in mid-January, Merrill Lynch said that further downtime is likely this year, and that will support prices for containerboard — the paper grade to which Smurfit has substantial exposure. Merrill Lynch also came out with a “peak performance objective” of EUR35 for Smurfit ADRs, a target that translates into almost EUR3.90 for the ordinary shares.
