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Qnb Fin 24 | LSE:79CK | London | Medium Term Loan |
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RNS Number:1390T Sappi Ld 18 March 2002 Sappi Limited Press Release Johannesburg, South Africa, 18 March 2002 Sappi to buy and rationalise Potlatch Corporation's coated fine paper business for US$480-million Sappi Limited, the world leader in coated fine paper, announced today that it has reached an agreement to acquire Potlatch Corporation's coated fine paper business and its Cloquet, Minnesota, USA, pulp and paper mill for US$480-million in cash. As part of the transaction, Potlatch will cease production of coated paper at the 140,000 short ton per year Brainerd coated paper mill and bear the related costs. The acquisition is subject to customary regulatory approvals. Sappi expects the acquisition to create significant value for its shareholders. The transaction is immediately accretive to earnings even with current weak market conditions. By 2003, on an annualised basis, Sappi expects earnings per share accretion of US$0.20, even with taking a conservative view on the potential synergies. Sappi Chairman, Eugene van As, said today that "the purchase provides a compelling opportunity to advance both Sappi's strategic and financial agendas. The acquired businesses are an excellent fit with our existing operations in North America and Europe. A complementary product line and customer base should allow Sappi to capture substantial synergies immediately. The integration of the Potlatch assets and transfer of the business from the Brainerd mill to our existing mills in North America and Europe will materially strengthen the competitiveness and profitability of our entire North American operations. We are highly confident that the US$480-million investment will quickly generate returns that significantly exceed our cost of capital." "We believe that the Cloquet pulp mill and coated paper assets have the potential to generate world class returns. The acquired assets are well invested with a book value well in excess of the transaction value. A new, US$525-million state-of-the-art pulp mill with a design capacity of 450,000 short tons per year was commissioned in 2000 at the Cloquet site. It is the newest pulp mill in the USA. We are confident that bringing Sappi's knowledge of pulp manufacturing to this mill, which had initial start-up problems, will result in improved performance. Cloquet also has two paper machines and an offline coater - the newest machine and coater installed in 1988 and 1989, respectively. This is one of the few machines in the USA that can produce European style triple coated paper with minimal investment. The Brainerd facility, which was built in 1917, will cease coated paper production". In 2001, the pulp and coated paper division of Potlatch had total annual net sales of US$464-million on sales of 363,000 short tons, all of it coated paper, and 147,000 tons of market pulp. Because Sappi has the capacity to supply the volume equivalent to Brainerd's output from its existing facilities in the USA and elsewhere, it will be able to avoid the US$60-million a year of overhead costs that were associated with operating the Brainerd facility. In addition to the Brainerd overhead costs, Sappi has identified a further US$60-million of savings and synergies which will be achieved within 12 months. These synergies consist of US$20-million of pulp efficiencies as well as rationalization in logistics, procurement and other administrative overheads of US$40-million. In summary, the integration of Potlatch into the Sappi system is expected to generate total annual pre-tax savings and synergies of at least US$120-million at existing prices. The total one-time costs to achieve these savings and synergies are not expected to exceed US$20-million. Bill Sheffield, the CEO of Sappi's global Fine Paper division, said "the purchase price represents an effective US$980 per annual metric ton for the Cloquet facility, which is an attractive price for a modern unit and we get a bonus of a 140,000 tons of additional business at no further cost." Commenting on the transaction, Sappi Fine Paper North America CEO, Kathy Walters, said today: "Potlatch produces excellent and well-known paper grades, in particular McCoy and Vintage, and is well known in the American designer and print community. The brands complement Sappi's own brand mix. The combined operation will be better able to service our customers and will increase Sappi's share of coated fine paper sales in the USA to 30%. It re- affirms Sappi's clear leadership position in this market segment." Commenting on the financing of the transaction, Donald Wilson, Chief Financial Officer of Sappi, said "the Group has existing financing facilities to cover the transaction at very competitive interest rates and debt-to-total capital will be approximately 44% immediately after the transaction which is within the Group's target of 25% to 50% range. In addition, because of the accelerated use of accumulated losses in a European subsidiary through which this transaction will be funded, the after-tax holding cost will be very low. We do not expect this transaction to affect Sappi's BBB credit rating." "The Cloquet site represents an important strategic move for Sappi. Imported coated sheets have seen rapid growth in recent years and now account for nearly half of the sheet fed market in the USA. American printers are changing to European style double and triple coated sheets because of price and performance. These products are less costly to manufacture than the traditional US grades, and also provide a superior surface," said Bill Sheffield. Sheffield continued "Sappi's Somerset and Belgrade ranges remain the pre-eminent number three/four (3/4) grades, but we have been looking for a facility to manufacture European style grades in America for some time. To date we supply these grades from our own European facilities. With Cloquet we will be able to convert the coater with minimal investment to make these products in the short term in the USA." Eugene van As today concluded by saying that the acquisition meets all of Sappi's strategic and financial criteria. "This deal meets all of our investment criteria. It is accretive to earnings immediately, the return exceeds our cost of capital, and the investment is more earnings enhancing than buying back our own shares. The site has interesting long-term potential for growth including the capability to accommodate a world class machine if and when the market demands it." ENDS Forward looking statements Certain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors, that could cause actual results and company plans and objectives to differ materially from those expressed or implied in the forward-looking statements (or from past results). Such risks, uncertainties and factors include, but are not limited to the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, production capacity, production and pricing), adverse changes in the markets for the group's products, consequences of substantial leverage, changing regulatory requirements, unanticipated production disruptions, economic and political conditions in international markets, the impact of investments, acquisitions and dispositions (including related financing), any delays, unexpected costs or other problems experienced with integrating acquisitions and achieving expected savings and synergies and currency fluctuations. The company undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise. Note to Editors Potlatch Corporation (USA) is an integrated forest products company with 1.5 million acres timberland in Idaho, Minnesota and Arkansas and a 17,000-acre hybrid poplar plantation in north-eastern Oregon. Manufacturing operations in Idaho, Nevada, Minnesota, Arkansas and Michigan produce lumber and panel products, bleached pulp and coated printing papers, consumer tissue and bleached paperboard. Please visit: www.sappi.com or www.potlatch.com For further information: Andre Oberholzer Corporate Affairs and Communication Manager Sappi Limited Tel +27 (0)11 407 8044 Fax +27 (0)11 403 8236 Mobile +27 (0)82 906 0638 Andre.Oberholzer@za.sappi.com or Stephanie Hall Communications Manager Sappi Fine Paper North America Tel +1 617 368 6318 Fax +1 617 368 6530 Stephanie.Hall@na.sappi.com This information is provided by RNS The company news service from the London Stock Exchange
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