Forestry giants on tenterhooks

Date: 30/07/1998

By Peter Chapman

SCANDINAVIAN forestry giants Stora and Enso are waiting anxiously to find out whether the European Commission will launch a full-scale three month probe into their planned merger.

A decision is now due to be made next Monday (3 August), after competition chief Karel van Miert's officials asked for an extra two weeks to ponder the merger of Sweden's Stora and Finnish state-controlled Enso. The deal would create Europe's largest forestry group and the world's biggest paper and packaging board company.

The Commission's decision to delay its ruling is focusing attention on the merged firm's market power in key areas. The packaging board business, which makes a range of cardboards, could be a casualty if officials opt for a full-scale probe.

Analysts say the new venture will control a large slice of the world's packaging board market, with particular strength in drinks containers.

In 1997, Enso produced 1,142,000 tonnes of all types of consumer packaging board, while Stora manufactured 329,000 tonnes of liquid packaging board.

Swedish carton-maker Tetra-Pak, a major buyer of liquid packaging board, told journalists it had a positive view of the merger. But it insisted that the deal must result in productivity improvements which would benefit customers. This view was echoed by Norwegian company Elopak, which also buys large volumes of the liquid packaging board.

Meanwhile, the deal has been attacked by the Finnish farmers' union, which fears the merger would squeeze forestry owners out of the market for raw timber.

Enso finance president Ingbar Petersson confirmed that the packaging board manufacturing business of the merged company was an area targeted by the Commission in its initial investigation.

But he refused to say whether the firm expected to be told to make concessions, including divestments of its operations in this sector.

“That is an area they have looked into. But things are very much on their side at the moment. We have to wait and see,” he told European Voice.

Petersson said Stora and Enso were keeping their fingers crossed that the Commission would wave the deal through early next month, adding that the merged firm was anxious to get under way and a longer-term probe would cost time and money.

“So far the Commission has just made a minor adjustment to its inquiry, because it put it off for a further two weeks. But it's not good for the merger if the inquiry goes on for a long period. We are eager to get a response as soon as possible,” he said.

Other key areas where Stora Enso would have a strong market presence include publication papers, fine papers and sawn goods. The venture would also have significant forest and power-generation holdings.

“The merger is based on the excellent strategic fit between these two strong companies, creating a global player in an increasingly competitive industry,” said Claes Dahlbäck, chairman of the board of Stora, in a statement.

He added that the deal would give the merged company an expanded global presence in North and South America and Asia.

Stora and Enso had combined sales of close to 11 billion ecu in 1997 and employ some 40,000 people, with total production capacity of more than 13.2 million tonnes.

Stora and Enso's mega-merger would continue recent moves to consolidate the forestry industry.

A similar deal between Finnish pulp and paper firms Repola and Kymmene was approved by the Commission two years ago.

The venture created Europe's largest pulp and paper products company with 45,000 staff and annual sales of 9.7 billion ecu.

A persistent motive of these mergers has been the desire of companies to diversify from excessive exposure in one or two products, where erratic swings in prices could leave them vulnerable.