*** Another article on the deal
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Repap snagged by Finland's UPM-Kymmene
Paper producer acquired, along with its
$1.1-billion debt, in surprise deal
PETER KENNEDY
British Columbia Bureau
Wednesday, August 30, 2000
Vancouver -- Finnish forestry giant UPM-Kymmene Corp. raised eyebrows yesterday by agreeing to acquire troubled New Brunswick paper producer Repap Enterprises Inc. and its $1.1-billion debt in a friendly transaction.
The offer surprised analysts because UPM-Kymmene is paying $160-million or 20 cents a share to acquire Repap, which only last Friday was trading at under 10 cents on the Toronto Stock Exchange.
In a telephone interview from Helsinki, UPM executive vice-president Martin Granholm said the decision to acquire Repap is being driven by strong demand for coated and uncoated groundwood paper, which is used to make catalogues and newspaper inserts.
While it has more than $1.1-billion in high-yield debt, Mr. Granholm said Repap was considered attractive because it has a modern mill in New Brunswick with the capacity to produce 450,000 tonnes of finished paper.
Stamford, Conn.-based Repap, with about 1,480 employees, has two sawmills in New Brunswick, and last year reported revenue of $570-million.
"These assets are in very good shape and will require only minimal investment," Mr. Granholm said.
The deal is being viewed as a very good one for TD Asset Management Inc. and New York-based Third Avenue Trust, which agreed to tender their combined 31-per-cent stake in Repap to UPM-Kymemme unless someone comes in with a higher offer. That's because they go from being investors in what is regarded as an orphan in the North American paper industry to being investors in an international paper giant with a strong balance sheet.
"This is a very good deal for the bondholders," said Reid Carter of National Bank Financial in Vancouver.
Since the bid comes fast on the heels of Norske Skogindustrier AS's $800-million (U.S.) acquisition of Fletcher Challenge Ltd.'s paper division, the deal is seen as another example of how huge Scandinavian firms are moving to pick up assets in North America.
"There are going to be more of these kinds of deals," said Charles Widman, a Vancouver-based forest industry consultant.
UPM-Kymmene is a diversified forest products goliath, which ranks as one of world's leading producers of magazine paper. It has plants in 15 countries, including the United States, and 170 sales and distribution centres, which produce a wide variety of products, including plywood and candy wrappers. Those operations generate annual revenue of more than $11-billion.
UPM-Kymmene is acquiring Repap and what is left of its Canadian operations after its $5.8-billion bid for U.S. giant Champion International Corp. was thwarted by rival bidder International Paper Co.
Mr. Granhom said UPM agreed to make the offer after it was approached several weeks ago by one of Repap's largest shareholders. He wouldn't say which one.
The transaction has been approved by the boards of both companies. However, to complete the deal, UPM requires the support of two-thirds of Repap's shareholders at a meeting to be held in Toronto by mid-October.
Under the terms of the deal, if Repap accepts a rival bid, it would be required to pay UPM a breakup fee of $18-million (Canadian).
Assuming the deal closes as planned in November, UPM will move to open negotiations with Repap's mainly U.S. debtholders in a bid to reduce the coupon rate from as high as 11.5 per cent.
Meanwhile, Mr. Granholm wasn't ruling out more North American deals. "This is an industry that is going through a lot of consolidation," he said. "We are monitoring what is happening around us."