Domtar Acquires E.B. Eddy to Become Canada's Largest Fine Paper Producer
On the heels of a joint venture late last year that made it the largest packaging producer in Canada, Domtar Inc. has now signed a definitive agreement to acquire E.B. Eddy, vaulting it into the position of largest fine paper producer in Canada and No. 7 producer of these grades in North America. The agreement with George Weston Ltd. of Toronto is for the purchase of all shares of its wholly-owned subsidiaries, E.B. Eddy Ltd. and E.B. Eddy Paper Inc., at a total price of C$803 million, plus about $100 million in assumed debt. The purchase price includes C$435 million in cash and C$368 million in Domtar common shares newly-issued to Weston.
Headquartered in Ottawa, E.B. Eddy is an integrated specialty paper and wood products company with 1997 sales of nearly $1 billion. Its forest products operations include three paper mills, one pulp mill, and five sawmills in Canada as well as one paper mill in the U.S. (Port Huron, MI), with a combined capacity approaching 500,000 metric tpy. Domtar's operations consist of three mills--a commodity fine papers mill at Windsor, Quebec, and specialty paper mills at Cornwall and St. Catharines, Ontario, with a total capacity of about 800,000 metric tpy.
With the acquisition, Domtar will be in the position to put about 1.3 million metric tpy of coated and uncoated fine papers on the market. In addition, it will increase its market pulp capacity to more than 310,000 metric tpy and boost its lumber business to more than 1.3 billion board feet per year (one of the five largest producers in Canada). Adding E.B. Eddy's product lines to Domtar's will raise the share of value-added specialty papers in Domtar's total paper business from 23% to 53%.
The acquisition will effectively increase Domtar's total employee force to around 8,000--4,700 at the company's existing operations and 3,300 at E.B. Eddy's operations. This does not include employees with Norampac, the joint (50%) venture packaging operation with Cascades, which is the leading corrugated shipping container operation in Canada.
According to Raymond Royer, Domtar's CEO and president, the acquisition combines complementary operations, product lines, transportation/distribution network, and sales force. He pointed out that it positions the company for growth in a continually consolidating industry. It also allows Domtar to gain a foothold in the U.S. market through the Port Huron mill.
A syndicate of banks will provide Domtar with a C$525 million credit facility to finance the cash portion of the transaction. The Corporation's debt to capitalization ratio will rise moderately to about 47%, from the current 41%, which is well within the corporation's guidelines.
Outlook Revised to Positive
Subsequent to the acquisition announcement, Standard & Poor's revised its outlook on Domtar Inc. to positive from stable and affirmed its double-'B'-plus corporate credit and senior unsecured debt ratings on the company, affecting about $425 million of debt.
The change in outlook reportedly reflects an improved business profile, which could lead to strengthened and more stable credit measures. Standard & Poor's expects that future growth initiatives will be implemented within the context of Domtar's stated debt leverage targets. If the integration of the newly acquired assets results in permanently improved credit measures, ratings could be raised.
Edited by Ken L. Patrick