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[Weston & E.B. Eddy have been the targets of protests by members of the
Ontario Public Interest Research Group (OPIRG), since last January.
E.B. Eddy and its subsidiaries use wood from wilderness areas such as
Temagami, Algoma Highlands, the Lower Spanish and Algonquin Park. - M.B.]
Wednesday 17 June 1998
Domtar swallows E.B. Eddy
Weston sheds subsidiary founded 145 years ago in Ottawa-Hull
Kristin Goff
The Ottawa Citizen
Dennis Leung, The Ottawa Citizen / Domtar and E.B. Eddy: List of
operations - Paper, Wood products, Market Pulp, Packaging
Montreal-based Domtar Inc. plans to buy E.B. Eddy Ltd. in an
$803-million deal that will create the largest producer of fine paper
products in Canada.
Eddy, which began operations in Ottawa-Hull 145 years ago, is a
subsidiary of George Weston Ltd., which announced nearly a year ago
that it wanted to shed its forestry product subsidiary to concentrate
on its food merchandising business.
Raymond Royer, Domtar president and chief executive, said yesterday
the Eddy operations are "an ideal fit" for Domtar because they
complement its paper and wood products operations with relatively
little overlap.
"We foresee significant synergies that will allow us to provide
improved benefits for both our customers and our shareholders," said
Mr. Royer. Improvements will come in a variety of areas, including
purchasing, administration and distribution, he said.
The acquisition will make Domtar the leading producer of fine papers,
including coated papers for business and commercial use, in Canada and
the seventh-largest in North America. The combined company will also
be among the top five lumber producers in Canada.
Domtar has 4,700 employees and had sales of about $1.9 billion last
year. Eddy, with about 3,300 employees in North America, including 420
in Ottawa-Hull, is one of Canada's largest speciality paper
manufacturers. Its 87-year-old mill at Chaudiere Falls in the Ottawa
River has undergone recent major changes that increased its
efficiencies and profitability.
Eddy, with sales of $956 million last year, has three paper mills, one
pulp mill and five sawmills in Canada and a paper mill in the United
States.
Domtar initially plans to operate E.B. Eddy as a separate division but
will work with Eddy officials to find ways to make the combined
company "more efficient and productive," Mr. Royer said. He declined
to speculate on layoffs.
He told reporters that, based on past experience, the potential
savings over the next year might be $30 million to $90 million for the
merged company, which will have combined sales of almost $3 billion.
Domtar said the purchase agreement includes $435 million in cash and
$368 million in Domtar common shares to be issued to George Weston
Ltd., giving Weston a 19-per-cent share ownership in Domtar. An
additional provision includes a purchase price adjustment of as much
as $120 million, payable in the event someone buys more than 50 per
cent of Domtar's shares.
Weston, the majority owner of the Loblaw supermarket chain, late last
summer announced plans to spin off its Eddy subsidiary into a
separate, widely held, public company. It suggested an initial public
offering of shares would be worth as much as $1 billion. The IPO was
shelved in November, partly because forestry product share prices were
hard hit by Asian financial problems. By early May, shortly before the
latest market slide began, Weston said it planned to revive its public
offering this spring. But it never happened.
Ross Stairs, manager of E.B. Eddy's Ottawa-Hull plant, said he was
"surprised" by the Domtar takeover, but he characterized it as a good
deal.
"Domtar is a company that's been around for a long time," Mr. Stairs
said. "It is considered to be a good company in the industry and we
think we can do very well with Domtar."
He said there might be "some small overlap" in certain speciality
paper products Eddy produces at its Ottawa-Hull mill and which Domtar
produces at its St. Catharines and Cornwall mills. No plants are
expected to be closed, he said, and for the most part, the operations
produce for different markets.
Analysts agreed.
"I don't expect any large layoffs," said Herve Carreau, a forestry
analyst with CIBC Wood Gundy in Montreal. "These businesses are
complementary and, to my knowledge, E.B. Eddy has quite efficient
operations. So I don't see any need for cost-cutting."
The deal could benefit Eddy by making it part of a stronger
organization, with greater ability to tackle markets and fund
expansion, he said.
"They will probably have more opportunity than if they went the IPO
route."
Weston had hoped for $1 billion from a public offering, but the $803
million it got "is in the ballpark" for current conditions, said
William Chisholm of Deacon Capital in Toronto. Problems in Asian
economies have created soft markets for lumber and forestry products
and share prices have been on a slide.
"The fundamentals of the forestry products are not that good," he
said.
Trading in shares of both companies on the Toronto Stock Exchange was
halted before the announcement. Before the halt, Weston shares rose $1
to $54, their highest level in three months. Domtar fell 20 cents to
$10.30.
The deal, which is subject to regulatory approval, could be finalized
within 60 days, Mr. Royer said.
---
OPIRG-Carleton Forestry Working Group
326 Unicentre, Carleton University, 1125 Colonel By Drive,
Ottawa, Ontario K1S 5B6 Canada
+1 613 520-2757 (tel), +1 613 520-3989 (fax), opirg@carleton.ca (internet)
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