Paper M&A

As the paper industry consolidates, in-plants speak out on how it is affecting them.

by Caroline Miller

TWO YEARS ago, it seemed as if everyone in the paper industry was switching dance partners.

Among the major acquisitions was International Paper's purchase of Champion—a deal worth nearly $7.3 billion, excluding net debt.

Then came the almost soap-opera-like saga of Weyerhaeuser's hostile takeover of Willamette Industries that dragged on for 14 months. It finally ended with an agreement that called for $6.1 billion in cash, or $55.50 per share, including the assumption of $1.7 billion of Willamette debt. At $19 billion in combined sales, the deal created one of the largest companies in the paper industry.

And of recent note is the merger of Westvaco and Mead. Called a merger of equals, the new company, named MeadWestvaco, has approximately $8 billion in annual revenues and exceptional global platforms in the company's four core businesses—packaging, coated and specialty papers, consumer and office products, and specialty chemicals.

The merger has been characterized by industry analysts as a positive move and the only way the two medium-sized companies could continue to compete in an age of giants. The merger means that MeadWestvaco becomes the second-largest manufacturer of coated paper in North America.

While all of the M&A activity may make sense for paper manufacturers, the question remains: What have been the repercussions of consolidation on in-plants?

At the time of the mergers, many industry analysts claimed that the effects of consolidation would not be felt by printers for at least two years.

So two years later, what has been the aftermath of consolidation?

Positive Impact

According to Resource Information Systems Inc. (RISI)—a private, Bedford, Mass.-based economic forecasting firm for the international forest products industry—the M&A activity has had a positive impact on the print industry.

"There is no question that there has been a significant impact. Consolidation has brought simplification and efficiency to the industry," says John Maine, vice president of RISI.

"Consolidation has brought a focus on cost reduction and competition. This provides a significant cost savings to printers," reports Maine.

But Jerry Stumpf, the corporate print products manager at Sentry Insurance, in Stevens Point, Wis., disagrees. The $2.5 million, 25-employee operation has seen a direct impact due to consolidation.

"Some of the manufacturers have changed their product lines. Some have gone in and totally redesigned their lines and in some cases they've taken product lines and dumped them. We have had to deal with finding alternative stocks," he says.

Less Paper Available

Stumpf has also noticed that paper manufacturers are no longer warehousing as much paper as they used to.

"In a lot of cases we have had a job come in and we call for the paper, and they don't have it in stock, and the mill is not going to make it until 'X' date—which is well after our job delivery date. So, again, we have to scramble to find a vendor with a similar product," he notes.

To make things worse, Stumpf has had to deal with deterioration in the quality of the sheet. "Right now I'm dealing with a whole skid of coated paper that is covered with slime holes. We haven't seen a lot of positive things as a result of consolidation. In fact, we feel like we are sort of stuck in the middle," he adds.

For Joe Morin, the in-plant manager at School District 11 Production Printing, in Colorado Springs, Colo., the story has been similar.

"Really, over the past several years with the M&A activity, we've seen change in local competition and a rapid fluctuation in product lines," he notes.

Maine, however, doesn't think the problems Stumpf and Morin are encountering have resulted from consolidation. But he admits that mergers and acquisitions do bring some degree of uncertainty.

"Any time there is a major reorganization and sales offices are combined, and we see positions merged or eliminated, there are going to be some short-terms problems," cautions Maine.

However, in the long term, the benefits of consolidation, which include more efficiency and streamlined products, outweigh the short-term growing pains.

Still, Tim Bride, the manager of printing services for Northwest Airlines, in St. Paul, Minn., isn't so sure.

"It's hard for us to see any benefit for us. There may be for a larger operation. Any time you lose a manufacturer in the marketplace, you lose competition. I don't think that can be of benefit for us," Bride explains, though he admits his $4 million operation has not noticed any impact from consolidation as of yet.

"We really haven't been impacted. We will do our rebidding this first quarter, so we may see it then. We've had no interruption in product lines," he remarks.

But at Chicago-based Dearborn Wholesale Grocers, Print Shop Manager Tom O'Mally has noticed one positive change since all of the consolidation began.

"I've found that we can wheel and deal a little better, and we are getting better prices," he says. "So I think in that sense consolidation has been good for us."