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Paper towel companies merge in $3.4 billion deal

May 5, 1997

MILWAUKEE (AP) _ James River Corp. is acquiring Fort Howard Corp. in a $5.8 billion deal analysts say will allow the paper towel and tissue company to compete more effectively.

The combined company, to be known as Fort James Corp. with headquarters in Richmond, Va., and Chicago, would have more than $7 billion in annual sales.

News of the deal, which includes a $3.4 billion exchange of stock and the assumption of $2.4 billion in debt, sent Fort Howard shares soaring 15.8 percent Monday, while James River rose almost 5 percent.

``It’s truly a merger of co-equals that are better off together than apart,″ said Miles L. Marsh, chairman and chief executive officer of Richmond-based James River, which makes Brawny paper towels, Quilted Northern bathroom tissue, Vanity Fair napkins, and Dixie cups and plates. Marsh would become chairman of Fort James.

James River is the world’s No. 2 maker of tissues behind Kimberly-Clark Corp., with $5.7 billion in sales last year.

``We are still No. 2 in the industry, but a much stronger No. 2,″ said Michael T. Riordan, chairman and chief executive officer of Fort Howard, a commercial supplier of paper products based in Green Bay, Wis. Riordan is to be president of the combined company.

The merger, expected to be completed at the end of summer, is designed to produce annual savings of $150 million to $200 million a year, the companies said. Those savings will include the elimination of jobs, which have yet to be identified, said Richard Elder, a James River spokesman.

The merger will help the companies take advantage of economies of scale, a bigger international sales base and a more diversified product line, Marsh said in a news conference in New York on Monday.

``I think it’s a really nice fit,″ said Josh Kapp, an analyst with Smith Barney. ``Fort Howard is almost universally acknowledged to be the low-cost producer, so to the extent that they can carry that to James River in terms of technology and low cost that should be a benefit.″

Fort Howard also has papermaking know-how that strengthens the deal.

``James River is acquiring state-of-the art, low-cost technology from Fort Howard,″ said Stephen Keane, an analyst at Robert W. Baird & Co. Inc. ``That’s the top benefit.″

Directors of both companies already approved the deal, which requires approval from shareholders of both companies and regulators in the United States and Europe.

There could be downsides, analysts say.

With Fort Howard’s plants nonunion and James River’s union, ``that could be a source of confusion,″ Keane said.

Fort Howard has sales of about $1.6 billion of commercial goods sold under the Preference and Envision brands, and household products such as Mardi Gras napkins and paper towels and Green Forest tissues, which are made of recycled paper.

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