Stora Enso pulls out of North America after massive losses

Paper company gets under EUR 2 billion for company it bought at EUR 5 billion

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The Finnish pulp and paper company Stora Enso is selling its factory holdings in North America to NewPage, the paper industry subsidiary of the American investment company Cerebrus Capital. Stora Enso said that in the future it would concentrate its operations on Europe. However, it will also seek new growth in Russia, China, and South America.
      The withdrawal from North America means that Stora Enso is backgracking on its global ambitions. CEO Jouko Karvinen now says that wood processing is always a local business.
      NewPage is buying seven production facilities in the United States and one in Canada. The selling price is EUR 1.8 billion. The seller will be left with less than a 20 per cent slice of NewPage, which will be sold later. Stora Enso will also get a seat on the NewPage board, but Karvinen says that the company will fill the seat with an independent professional board member.
     
The sale of companies to capital investors is seen as a bad omen for traditional companies in the field, who appreciate shiny paper machines, clean factory floors, and long-term client relationships. Capital investors primarily seek to generate all of the income that they can from equipment that they got for a song; they are seen as less interested in improving the factories, or developing the marketing network.
      With a cheap acquisition, the investors do not have the same kind of need to raise prices as old companies used to. With new players in the game, price competition is also expected to intensify.
      Stora Enso got its North American factories seven years ago, when the company bought Consolidated Papers, which manufactures coated grades of paper. At that time, the price was EUR 4.9 billion.
      Stora Enso went into the United States when Jukka Härmälä was CEO. On Friday he did not want to comment on the decision to divest.
     
The Port Hawkesbury plant in the east of Canada came under the ownership of Stora Enso through the Swedish Stora Kopparberg. Stora and Enso joined forces in the late 1990s.
      The corporate acquisition no longer affects the company's corporate profit, as the Stora Enso North American operations are currently breaking even. Previously the result was seriously in the red.
      The worst problems apparently were with the Port Hawkesbury mill, although it contained the most modern magazine paper machine in North America. However, the Canadian dollar has strengthened so much against the US dollar that making a profit in Canada is nearly impossible.
     
CEO Karvinen feels that the most important reason for the selloff was the need to significantly increase the yield on capital. The company's goal is a 13 per cent return, but it has not managed to achieve that for a long time.
      "This is the first concrete step in what I had talked about for half a year. We are consolidating, and picking the games in which we plan to win. And in the case of North America we have concluded that we will not win this game on our own".
      Karvinen feels that the difference between the purchase and sales price of Consolidated Papers is "significant".
      "One cannot change history, but our calculations are based on the possibilities for return in the various alternatives. We are trying to be as open as possible."
     
Karvinen sees himself as a restless manager, suggesting that other rearrangements could be forthcoming in the coming months.
      "In Europe we are centrally present. Latin America has cheap fibre, consumption is growing fast in China, and in Russia we are making preliminary studies on factory investments."
     
After the deal, Stora Enso's turnover is expected to decline by about EUR 2 billion, which reduces work in the company's head office. "That calculation has also been made."
      Stora Enso's international office has been set up in London - a move which was explained by the company's global character. It was easier for directors to fly to London for meetings than to the official headquarters in Helsinki. Both Karvinen and Deputy CEO Hannu Ryöppönen live in Great Britain.
      "Everyone always asks about this London office. My office is in this case", says Karvinen, who was reached in New York.


Previously in HS International Edition:
  Stora Enso reorganisation may lead to lay-offs (6.9.2006)
  Jouko Karvinen surprise choice for Stora Enso helm (18.10.2006)
  Search is on for successor of Jukka Härmälä as Stora Enso CEO (17.6.2004)
  Stora Enso loses over one billion euros in U.S. acquisition (28.2.2002)

Links:
  Stora Enso press release September 21: Stora Enso divests its North American paper operations to NewPage to create a North American paper industry leader

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