Abitibi, Bowater merging to create forestry giant

Forest products companies Abitibi-Consolidated Inc. and Bowater Inc. said Monday their planned merger should return them to profitability inan industry that's had its share of red ink and mill closures.

The companiessaid their mergerwill result inthe third-largest publicly traded paper and forest products company in North America.

Thenew company would control almost half of the North American newsprint market, by some estimates. The deal still requires regulatory and shareholder approval.

Both companies have posted large losses in recent years. Newsprint prices have slumped amid falling demand ascirculation drops and the size of papers shrinks.

The new company would have annual revenues of about $9.3 billion, the two businesses said in an announcement before the opening of stock markets.

The companies are calling their proposed all-stock deal a merger of equals. The new firm,which would becalled AbitibiBowater Inc., wouldhave itsheadquarters in Montreal— the current home of Abitibi. The new company would also retain a regional manufacturing and sales office in Bowater's home of Greenville, S.C.

Abitibi president and CEO John Weaver would become executive chairman of the new firm, while David Paterson, Bowater's chairman, president and CEO, would become president and CEO. Each firm will have seven of the 14 seats on AbitibiBowater's board of directors.

Under terms of the deal, current Bowater shareholders would wind up with 52 per cent of the equity in the new company, while Abitibi owners would hold the remainder.

Bowater shareholders would get 0.52 of a share in the new firm for each of their current shares. Each Abitibi share would be exchanged for 0.06261 of a new AbitibiBowater share.

In heavyvolumewith more than 53.7 million shares traded, Abitibihit $3.94, up 83 cents on the TSX. Bowater shares were up24 per cent, climbing $5.29 US to reach $27.44 US on the NYSE.

Forest products market has been tough

The market for forest products in recent years has been difficult, evidenced by a slew ofclosures of pulp, paper and lumber mills. Paterson alluded to those conditions as a reason for the merger.

"This a logical strategic step to address the realities of today's marketplace," he said.

The merger proposal comes as Abitibi-Consolidated has launched a new round of cost-reducing moves. For instance, managers and unionized workers at its mill in Grand Falls-Windsor, N.L., have been asked to find $10 million in annual savings by March.

It's expected the mergerwould save the companies about $295 million annually. The firms did not say if the merger would result in layoffs or plant closures.

The merged firm would own or operate 32 pulp and paper facilities, plus 35 wood product facilities in Eastern Canada and the southeastern United States.

Aunion representing forestry workers said the move by Abitibi and Bowater should cause concern in government and community circles.

"There are many issues underlying this announced merger which should raise alarm bells in Ottawa," said DavidColes, presidentof the Communications, Energy and Paperworkers Union of Canada. "Our forest-based industries and communities are already in crisis with the loss of some 10,000 jobs over the past few years.

"Our history with mergers and acquisitions has been that so-called 'synergies' really mean more mill closures, job losses and devastation in our communities," he said.

The union called on Prime Minister Stephen Harper to convene a national summit on the future of the forestry industry.

Thecompanies said their prediction of $295 millionin synergies does not depend on closing more mills.

"Those synergies are based on reductions in costs throughout the system but not predicated on any mill closures," Bowater's David Paterson tolda news conference.