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International Paper Buys Union Camp

November 24, 1998

NEW YORK (AP) _ International Paper is buying smaller rival Union Camp Corp. for $4.9 billion, joining the wave of U.S. paper producers desperately seeking to slash costs amid slumping prices and booming Asian imports.

Shares of Union Camp soared almost 33 percent Tuesday on news of the deal, while International Paper fell by nearly 4 percent.

International Paper, which already has eliminated thousands of jobs, hopes the merger will lead to annual savings of $300 million through measures including job cuts and possible plant closings. Specifics of cutback plans were not disclosed.

International Paper, the world’s largest paper producer, sought Union Camp in particular to boost its production of industrial packaging and coated papers, which are used in magazines.

Like many of its U.S. counterparts, International Paper has suffered from weak demand that has been exacerbated by Asia’s economic downturn since mid-1997. Through the first three quarters of this year, International Paper’s sales have slipped 3 percent to $14 billion, while Union Camp sales were up just 3 percent at $3.4 billion.

``The industry seems to be _ aside from a little moment of coming up for air in the mid-1990s _ in a state of constant recession,″ said industry watcher Sheldon Grodsky, director of research at Grodsky Associates Inc., a South Orange, N.J.-based brokerage.

Prices fetched by manufacturers for a range of paper products has fallen sharply in just the past year, according to Resource Information Systems Inc., a Bedford, Mass.-based forest-products forecasting firm.

Comparing October prices, copy paper has dropped 10 percent from last year to $740 per ton, while the price of kraft liner _ used in corrugated packaging _ has fallen 13 percent to $330 per ton. Newsprint has been an exception, rising 4 percent to $590 per metric ton, because of a strike at Canadian producer Abitibi-Consolidated Inc. A metric ton is about 2,205 pounds.

Many paper products from Europe and Latin America initially had been targeted for Asian markets. But those shipments have been diverted to America because of Asia’s weak demand, said analyst Kathryn McAuley of Brown Brothers Harriman.

In addition, there has been a flood of imports from Asia, where strapped producers are willing to sell at lower prices to gain dollars, which are more stable than their devalued currencies.

In the first six months of this year, Asian newsprint imports soared 400 percent compared to the first half of 1997, according to the American Forest & Paper Association in Washington. In addition, imports of paper and paperboard _ a category that includes wrapping paper and paper used in cereal boxes and packaging _ rose 234 percent, while imports of printing and writing papers jumped 194 percent.

``Asia has very high tariffs, while the United States has virtually no tariffs at all on paper,″ said Barry Polsky, a spokesman for the association.

Like all other industries, the competitive pressures on paper companies have led to furious consolidation. There have been $15.8 billion in paper-industry mergers announced so far this year, up 23 percent from all of last year and up nearly five times from the 1996 total, according to Securities Data Co.

In recent years, Kimberly-Clark Corp. has purchased rival Scott Paper Co., while giant producers James River Corp. and Fort Howard Corp. have also merged.

In response, International Paper has announced about 10,500 job cuts since July 1997 _ including 1,500 disclosed last month _ in efforts to trim its costs.

Under Tuesday’s stock swap, International Paper will pay $71 per share for Union Camp. In addition to the purchase price, International Paper will assume $1.7 billion in Union Camp’s debt.

Union Camp stock shot up $16 to reach $64.93 3/4 a share on the New York Stock Exchange, where International Paper shares fell $1.81 1/4 to $44.

Based in Purchase, N.Y., International Paper has operations in 30 countries and employs more than 80,000 people. Union Camp, headquartered in Wayne, N.J., employs nearly 18,000 people at operations in 40 countries.

The deal is expected to close at the end of the first quarter of 1999.

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