Analysts see Stora Enso and IP merger as unlikely

BRUSSELS, Aug. 22, 2001, (paperloop.com) - Analysts believe a merger between industry giants Stora Enso and International Paper (IP) is unlikely, despite media reports linking the pair.
The two companies are leaders in the industry, with IP heading this year's PPI Top 150 survey and Stora Enso coming in fourth. While not completely writing off the possibility of a deal, the sheer size of the companies led a number of analysts to question whether competition authorities would green-light a merger. If any deal was to go ahead, most analysts agreed that some divestments would be necessary.
Hannu Nyman of Conventum and H?kon Lerstad of ABG Sundal Collier both felt a union would create competition problems. Nyman said there would be too much market dominance in some sectors in the US. Lerstad agreed, saying that if the pair joined forces, they would enjoy a market share of approximately 40% in the US coated paper market. But UBS Warburg analyst Denis Christie thought the companies might be able to get away with this, pointing out that Abitibi-Consolidated has a similar market share in the US newsprint sector.
One analyst, who preferred not to be named, said that if there was any truth to the rumors, it was more likely to be on a smaller scale, with the companies perhaps talking about a few assets rather than a full-blown merger.
Nyman does expect to see further consolidation in the paper industry, but on a smaller scale. "I am more inclined to believe that the big players...will continue to grow by buying small and medium-sized companies and expanding their coverage by area that way."
Stora Enso recently gained a firm foothold in the North American market through its acquisition of Consolidated Papers. When that merger was announced, the company suffered a shareholder backlash, with its share price dropping 15%.
Although doubting the likelihood of a union with IP, Nyman said that if a merger did take place, Stora Enso shareholders would benefit due to IP's stronger performing shares. "It would probably result in a 50% improvement on Stora Enso's current share price," he added.
A company spokesman said Stora Enso has a policy of not commenting on market rumors. The firm would neither confirm nor deny the speculation. But if a merger was to go ahead, the new entity would have combined sales of around $32 billion and a paper and board output of some 27 million tonnes/yr, based on PPI's Top 150 survey for 2001.