Newspapers and Technology March 2000
Abitibi-Consolidated and
Donohue form paper giant
By Kevin Juhasz
Editor
Abitibi-Consolidated Inc., Donohue Inc. and Quebecor Inc. announced Feb. 11 that Abitibi will bid to purchase all outstanding shares of Donohue in a cash and share transaction valued at over $4.8 billion, including $896.5 million in Donohue debt to be assumed by Abitibi.
The merger will give the new Abitibi control of approximately 35 percent of the paper market in North America, moving them further forward in their quest "to be the world's preferred marketer and manufacturer of papers for communication."
Abitibi operates 18 mills in North America and the U.K. The company also owns a one-third interest in the Pan Asia Paper Co. with four mills in South Korea, Thailand and China.
Donohue, a subsidiary of Quebecor, is the third-largest newsprint producer in North America and fourth-largest in the world with mills located in Quebec, Ontario, British Columbia and Texas.
The change gives Abitibi a total of 25 paper mills in Canada, the United States and the U.K.
It will bring their newsprint production to an annual capacity of 6.2 million tons, including brokered newsprint.
A support agreement provides for a break-up fee of $151.7 million in the event that the Donohue board changes its recommendation in favor of a competing bid.
John Weaver will remain as president and chief executive officer of Abitibi. Michel Destines, president and CEO of Donohue, will become chairman of the board.
According to the companies, the transaction will be accounted for as a reverse takeover under applicable accounting rules. It is subject to certain conditions in favor of Abitibi, including the tendering of two-thirds of each class of Donohue shares on a fully-diluted basis.
Quebecor agreed to tender all of its Class A subordinate voting shares and all of its Class B shares. The shares represent approximately 63.2 percent of the voting rights attached to all outstanding voting shares of Donohue.
"We believe that this combination is far and away the best consolidation opportunity in our industry," said Weaver in a statement. "It will transform Abitibi-Consolidated into a global low-cost producer."
The proposed business combination has been approved by the boards of directors of all three companies. The sale is still subject to normal regulatory approvals.
While the move increases the amount of newsprint the company produces, Abitibi will continue to make reductions in its high-cost newsprint production.
Last year, according to Abitibi, the company removed 443,000 tons of high-cost capacity. It plans to remove another 507,000 tons over the next 18 months -- 394,000 from closing machines and 113,000 from the its mill in Lufkin, Texas -- which will bring its total capacity to just under 5.9 million tons.