Newsprint manufacturers consider Nordic joint venture to trim away excess capacity; Stora Enso denies assertions by Helsingin Sanomat

Trading in Stora Enso shares suspended in Helsinki on Thursday morning

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Three major Nordic paper manufacturers are planning to implement arrangements aimed at cutting excess capacity in the production of newsprint.
      Helsingin Sanomat has learned that the Finnish and Swedish-owned Stora Enso, Sweden’s Holmen, and Norway’s Norske Skog are planning the partial or complete merger of their newsprint industries.
      No single company would have a majority holding in the new enterprise, as none of the manufacturers want to bear the full burden of the relatively unprofitable newsprint manufacturing business. The first task of the new company would be to shut down the most unprofitable installations.
     
No new capital would be needed to set up the new company. The mills would be moved into the company as property which would be the share capital of the new enterprise.
      The papers for the establishment of the new company are to be signed later this autumn. The aim is for the new company to start negotiations with the printing houses that are its customers about next year’s prices.
      Standard practice in the newsprint business is to set the price of paper a year at a time.
     
The arrangement requires permission from the competition authorities of the European Union.
      Large newspaper publishers are likely to oppose the plan, as it would lead to a rise in the price of newsprint. On the other hand, competition officials in Brussels are likely to understand that the production of newsprint cannot perpetually involve high production costs and low sales prices.
      A joint venture of Stora Enso, Holmen, and Norske Skog would form a concentration on the newsprint market in Europe. At present, Stora Enso is the largest, Norske Skog is the third-largest, and Holmen is the fourth-largest producer. The Finnish UPM, which is not part of the project, is the number-two manufacturer.
     
Stora Enso CEO Jouko Karvinen has shown that he is capable of trimming his company’s structures with little regard to cost. He got rid of his company’s plants in North America at a massive loss, and he sold the Kotka mills to a capital investor almost for free.
      Stora Enso owns paper mills in Finland, Sweden, Germany, and Belgium. In Finland Stora Enso is a large newsprint manufacturer, but the company has closed down its Summa mill, and is also shutting down newsprint machines in Varkaus.
     
If the establishment of a new newsprint company succeeds, it will not be the last change. Helsingin Sanomat has learned that Stora Enso aims at massive changes in the manufacture of magazine paper.
      The dire straits of newsprint manufacture began late last year, when the producers lost nerve. To fill this year’s order books, the companies started a price war, in which the price of a tonne of newsprint fell from more than EUR 500 to close to EUR 400.
      This year the newsprint division of Stora Enso sustained a loss of EUR 8 million to June. Last year it showed a profit of EUR 52 million on the same six-month period.
     
On Thursday morning, trading in the shares of all three companies was suspended.
      Before the suspension was imposed the value of the Norske Skog stock had risen in Oslo by almost 20%.
      The Holmen A- and B-shares were up more than 4% and 6% respectively in early trading in Stockholm, and in Helsinki Stora Enso's share price had put on around 4.5% as investors responded to the rumours.
     
In the early afternoon, Stora Enso issued a denial on its website, saying that there are "no discussions ongoing" concerning a possible newsprint joint venture between Stora Enso, Holmen, and Norske Skog.
     


Links:
  Nasdaq OMX Helsinki suspension of trading announcement
  Stora Enso R-Share on the Helsinki Exchange
  Stora Enso press release, 2.9.2010
  Stora Enso
  Holmen
  Norske Skog

Helsingin Sanomat