Is bigger necessarily better?

[Bill Johnson]

Domtar to merge with Weyerhaeuser arm

RICHARD BLACKWELL

Wednesday, August 23, 2006

Montreal-based paper company Domtar Inc. will merge with an arm of U.S. giant Weyerhaeuser Co., to form the world's second largest fine paper manufacturing company.
In an announcement Wednesday, the two companies said the $3.3-billion (U.S.) deal will give Weyerhaeuser shareholders a 55 per cent ownership stake in the new entity. Domtar's current shareholders will own about 45 per cent of the company.
The new company will keep the Domtar name and have its head office in Montreal, but the operating headquarters will be in Fort Mill, South Carolina.
It will have about 14,000 employees.
Domtar's president Raymond Royer will stay on to lead the new entity.
"With this transaction, we are transforming Domtar into one of the world's leading paper companies, presenting shareholders with new opportunities and creating a stronger company for employees and customers," Mr. Royer said in a statement.
The chairman of the new company will be Harold MacKay, a Regina lawyer who is an international adviser to Weyerhaeuser's board. He is best known for chairing a task force in 1998 on the future of the Canadian financial services industry.
Domtar said the new company will have about $6.5-billion in annual sales, and the backbone of its operations will be six "highly efficient world-class uncoated free-sheet mills." It will also own several specialty manufacturing facilities.
Under the terms of the deal, Weyerhaeuser will receive stock and a $1.35-billion cash payment, in return form transferring its fine paper operations to the new company. The stock will be distributed to existing Weyerhaeuser shareholders.
Existing Domtar shares will be exchanged for shares in a subsidiary of the new company on a one-for-one basis. These shares will eventually be exchangeable into shares of the new company.
The boards of the two companies have approved the deal, but it still needs approvals from Domtar shareholders, the Superior Court of Quebec, competition authorities and securities regulators, the companies said.
They expect the deal to close in the first quarter of 2007.
The companies said they expect to gain about $200-million a year in synergies between the two firms, within two years.
Weyerhaeuser became a major player in the Canadian pulp and paper business in 1999, when it paid about $2.9-billion (Canadian) for MacMillan Bloedel Ltd.
© The Globe and Mail

[JimBuis]

Two companies become one. Sounds like a merger. Less competition. No, bigger is not better.

IMHO,
Jim

[crtreedude]

I once read that in the majority of cases, when companies merge (when they are similar size, etc.) the result is a loss.

[beenthere]

Better for who?  and the "result is a loss" for who? 

[crtreedude]

It is a gain usually for the management team who get bonuses - it is generally a loss over time for the stockholders, workers and community.

[jon12345]

Now they can afford to close some of the smaller plants, give management big bonuses, let their wood grow more with less factories to feed, lower prices, push out some more competition etc etc  :

[Norm]

So that time I owned Dekalb shares for $65 and Monsanto came in and bought them for $100 a share I lost out. The employees owned shares through their 401k's kept their jobs and made out like a bandit. They fired all of their management.

I think a bunch of em retired to CR. ;D