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October 29, 2007 (9:55a) - Transaction
Completed
The companies have announce the completion of
this transaction.
Transaction length: 274
days.
October 23, 2007 (5:40p) - DOJ Press Release /
Close Details
The DOJ press release for this deal's HSR
clearance is available by following
this link..
The companies also issued a press release which contains the
following:
"The proposed combination, which was
announced on January 29, 2007, is expected to close by the end of the month,
following the completion of certain administrative formalities."
October 23, 2007 (4:35p) - HSR Clearance
The Department of Justice has conditionally
approved this transaction under HSR.
As anticipated, the companies will be required to sell a
single newsprint mill operation in Arizona.
The DOJ is expected to publish the official consent decree
shortly.
October 19, 2007 (1:25p) - Status Report
Another month has passed with no viable sign
that the FTC is ready to act in this case. Naturally, it is difficult to read
any negative or positive implications into this latest period of silence,
although it is generally believed that if new or unresolvable problems have
developed, they would have surfaced via leaks by now.
This publication continues to believe that the FTC and the
companies must be very close to reaching a consent agreement in this case
whereupon certain printing mill operations will be sold to a third party. I is
not unusual for this final stage of a divestiture process (assuming
divestitures will be necessary here) to encounter delays as issues such as sale
price and FTC/DOJ sale consent often surface. This is evidently the situation
currently hindering the PTMK-GAP transaction, and may be
perceive as a trend of sorts with the FTC at this time.
While it remains expected that there will be a development
in this deal without much further delay, it must be acknowledge that slippage
into November is certainly a possibility. There is absolutely no reason to
expect a late development that may threaten this transaction, as there is
simply no legitimate reason that any regulatory concerns can not be resolved
fairly easily.
In short, conditional FTC approval is expected within the
next two to three weeks.
September 18, 2007 (8:10a) - Status Report
(Press Release)
The companies have apparently been compelled to
break the long silence regarding the pending DOJ review, issuing the following
statement:
"Abitibi-Consolidated Inc. (NYSE: ABY, TSX:
A) and Bowater Incorporated (NYSE: BOW, TSX: BWX) today announced continued
progress with the U.S. Department of Justice (DOJ) pertaining to their proposed
combination. The companies reaffirmed their expectation that DOJ approval will
be obtained within the next few weeks. As a result of this timeline, the
closing is now anticipated for early in the fourth quarter."
Although naturally lacking any specifics, the press release
virtually mimics last week's update on the HSR review and transaction in
general. The company update this morning must be perceived as a positive
development, and a solid indication that the final regulatory approval will be
obtained before the end of next month.
September 12, 2007 (5:30p) - Status
Report
There has been absolute silence for this deal
with respect to the ongoing FTC review. The silence, and continued delay, are
believed to be directly related to a divestiture process which must now be
assumed is part of the review. It was originally
suggested that divestitures -- or at least one divestiture -- might be
necessary in the newsprint segment in order to appease the FTC. As the deal
proceeded however, most indications pointed to the companies being able to
avoid selling off any operations. Thus, the FTC timing was moved forward.
It is now apparent that the companies and the FTC are going
to need to reach a consent agreement on at least one paper mill and the
original assessment now seems to be more on the mark:
"It would be a major accomplishment if the
companies could complete the deal before the end of this summer, but that would
involve a situation where no conditions were applied by the FTC. It is more
likely that the second request process will carry the transaction well into the
early fall of this year -- roughly a September / October time
frame."
Of course, this assumes that any potential divestiture
situation has proceeded to the point where a buyer has been found (Catalyst
Paper was rumored as a buyer in late June) and that the FTC staff is already
assessing the buyer. Usually this sort of development is leaked, or announced,
when the process moves to that stage. Again, there has been nothing but silence
for more than two months.
This is a situation where precedent and available data often
come in very handy in getting a timing picture. Paper industry merger, as noted
back in January, can be lengthy when divestitures are required, but they can
also be somewhat predictable, much like Grocery industry mergers. Below is a
timeline chart of recent major deals in this sector. This was the original
basis for suggesting a 200+ day transaction in this case. This deal is now in
its 227th day.
The current expectation is for some sort of positive
development within the next four weeks. Presumably, this will materialize in
the form of a consent agreement with the FTC, followed very soon after by a
closing date. This transaction should close before the end of October.
August 14, 2007 (8:05a)- Quebec Superior Court
Approval
The companies announced the receipt of Quebec
Superior Court approval on August 7, 2007. This marks the final Canadian
approval required in the transaction.
There have been no legitimate indications that a DOJ
decision is imminent. However, it remains fully expected that DOJ approval will
be granted before the end of the third quarter, and quite possibly before the
end of this month.
August 3, 2007 (8:20a) - Investment Canada
Approval
The Canadian Minister of Industry has cleared
this merger under the Investment Canada act.
This leaves the HSR review as the only remaining regulatory
obstacle for this transaction. As discussed previously, HSR clearance is
expected without much further delay, and ti remains entirely possible that the
deal will be completed before the end of this month.
July 26, 2007 (12:50p) - Shareholder
Approvals
Both companies' shareholders have approved the
merger.
The next expected event in this deal is Investment Canada
approval which remains anticipated at some point in August.
July 25, 2007 (8:05a) - Competition Canada
Approval
The Canadian Competition Bureau formally
approved this transaction yesterday (7/24) without conditions.
As of this update, the HSR and Investment Canada reviews
remain in progress.
As noted previously, both companies' shareholder meetings
will be held tomorrow, July 26, and approval is anticipated despite some
continued shareholder opposition, primarily on ABY's side. There is currently
no indication that the opposition will even be significant enough to cause a
shareholder meeting adjournment.
All approvals remain anticipated within the next five weeks,
and the deal remains expected to close before the end of August 2007.
July 18, 2007 (11:25a) - Status Report
ABY has retained CIBC World Markets to solicit
proxies from its Canadian shareholders heading into the July 26 shareholder
meeting. This is clearly an effort -- and a reasonable one at that -- to
suppress the opposition publicly touted by Third Avenue Management over the
last few days. As there has always been some concern over deal in Canada
amongst union groups and minor shareholders, this action should effectively
counter any possibility of coordinated and/or increased opposition as the ABY
shareholder meeting approaches.
It will again be repeated that this combination is clearly
in the best interests of both companies' shareholders and claims to the
contrary are viewed as attempts to obtain greater short-term benefits.
ABY shareholder approval remains expected on July 26.
July 17, 2007 (8:40a) - Status Report
The last 24 hours for this deal has seen major
proxy firms (including ISS) issue recommendations for shareholders to support
the merger, while a significant ABY institutional shareholder has announced its
opposition to the merger. Citing an undervalued offer and corporate governance
concerns, Third Avenue Management is now urging ABY shareholders to vote
against the merger on July 26. At this time, Third Avenue is the only major
shareholder to publicly express opposition to the transaction.
In general, this publication believes that not only is the
offer adequate, but the need for these companies to combine is more than
obvious. While Third Avenue has every right to attempt to obtain a larger
return on its investment in ABY, the bottom line is these companies will be
much better off in the long run as a combined entity -- particularly ABY which
simply can not remain a top competitor in the current paper (especially
newsprint) industry. This merger is a no-brainer and any claims to the contrary
must be viewed as self-serving rhetoric.
The companies should have no difficulty obtaining
shareholder approvals on July 26, and the transaction remains expected to close
before the end of this summer.
June 22, 2007 (3:10p) - Preliminary Proxy
Statement Filed
ABY filed the
fifth amended
proxy statement for this transaction with the SEC on June 20, 2007.
The regulatory matters section of the proxy provides the
following updates:
"AbitibiBowater filed an application for
review under the Investment Canada Act on April 20, 2007, and on June 4, 2007,
the Minister extended the initial review for an additional 30
days."
The Investment Canada extension is not at all surprising for
this deal and at the same time is not currently perceived as a major obstacle
at this point. Granted, there have been some rumblings from Canadian Union
groups from day one, but these concerns seem to have faded over the recent
months and will likely not re-surface at any motivated level. In other words,
the Investment Canada review could not go through rapidly under the
circumstances, so extensions can be expected until the Competition Canada and
HSR reviews near their conclusions.
With respect to the HSR review, reports are now surfacing
that Catalyst Paper is considering bidding for any divestitures that may be
required by the DOJ and/or Competition Canada. However, it is also being
reported by a few sources that divestitures may actually not be necessary to
obtain the major regulatory approvals.
Either way, these are very positive indications for the
review process and should the apparent progress continue as expected, the
companies should be bale to close the deal before the end of August with little
difficulty.
June 16, 2007 (11:10a) - Shareholder Meeting
Details
The companies have announced that both special
shareholder meetings will be held on July 26, 2007.
In a related development, reports have surfaced indicating
that BOW shareholders are expressing concerns with the exchange ratio, citing
an increase in the Canadian dollar's value as a shift in favor of ABY
shareholders. At this point, the BOW shareholder concern appears to be minimal
and is not currently considered by this publication to be a significant factor.
However, this could potentially evolve into a volatile situation as the
shareholder meeting approach, so it will be monitored closely for
developments.
June 4, 2007 (11:30a) - Preliminary Proxy
Statement Filed
ABY filed a
second amended
proxy statement for this transaction with the SEC on May 30, 2007.
Shareholder meeting details are still not included in the
revised document.
The regulatory matters section of the proxy provides the
following updates:
"AbitibiBowater filed an application under
the Investment Canada Act on April 20, 2007 and on April 23, 2007 received
confirmation that the filing is complete and the initial 45-day review period
has commenced.
"Abitibi and Bowater submitted a joint filing to the
antitrust authorities of Brazil on February 16, 2007, although the approval of
this authority is not required to complete the combination. On March 21, 2007,
Abitibi and Bowater submitted a joint filing to the Competition Board of Turkey
which approved the combination on April 12, 2007. Abitibi and Bowater also may
provide notification of the combination to the competition authorities in
Greece, but such a filing is not required prior to completion of the
combination."
Based on the April 23 confirmation date noted above, the
Investment Canada review deadline is July 6, 2007. This transaction has
a high probability of review extension, particularly given the attention this
and other Canadian acquisitions have received among the public. Assuming the
review is extended, the second deadline would fall in mid/late-August, at which
time approval would be more likely to occur.
There have been no substantial updates on the HSR review
process, which is now well into the third month of the second request. Some
sort of progress remains expected during the third quarter of this year, and if
the companies are able to comply before the end of August -- which seem
entirely possible -- completion before the end of September can still be
accomplished. As noted throughout, this is not an extremely complex situation
for the companies or the FTC, and an offering of a divestiture or two should
appease regulators both in the U.S. and Canada.
While a delay into the fourth quarter remains entirely
possible, the companies should be able to avoid this via good-faith
negotiations with regulators over the course of the next two months.
May 8, 2007 (8:15a) - Preliminary Proxy
Statement Filed
ABY has filed the
first amended
proxy statement for this transaction with the SEC.
Shareholder meeting details are not included in the revised
document.
The regulatory matters section of the proxy states the
following:
"Both Abitibi and Bowater intend to respond
to the (HSR) second request and to work toward a closing of the combination in
the third quarter of 2007.
"Abitibi and Bowater have been advised that the time
required by the (Competition Canada) Commissioner to complete her substantive
review of the combination will extend beyond the end of the statutory waiting
period which terminated on April 2, 2007.
"AbitibiBowater filed an application for review under
the Investment Canada Act on April 20, 2007.
Although its not much to go on, the fact that the companies
openly state a third quarter target for HSR clearance and completion is a very
good indication that significant progress is being made with the key
regulators.
It has been suggested in several reports that a third
quarter close is possible if, and only if, the companies are willing and able
to openly cooperate with the FTC and Competition Bureau in their reviews. This
essentially means offering divestitures, rather than making the
regulators force divestitures in one or more overlapping geographic markets.
Given the companies' current close projection, it must be assumed that they are
indeed providing options on their own and have most likely received some level
of favorable response from the regulators.
There is no reason at this point to anticipate slippage into
the fourth quarter for this transaction.
May 1, 2007 (10:00a) - Status Report
According to ABY, the companies are currently in
the process of "moving forward to comply with this request as quickly as
possible," but the companies will not offer any estimation on timing to
compliance at this point. The fact that the companies are open about the
compliance process can be viewed as a positive, even at this relatively early
stage. This is not a terribly complex overlap situation and it should be
resolved without much difficulty. As stated last week:
"It remains the opinion of this publication
that the companies can obtain FTC consent if they work in good faith with the
regulator from day one and if they offer a divestiture or two, rather than
forcing the FTC into demanding concessions further along in the review process.
If the companies take to friendly/open approach, HSR clearance and deal
completion is likely to occur before the end of September 2007."
Assuming the companies intend to certify compliance and
force a second HSR waiting period, the compliance would naturally have to occur
at some point in August in order to obtain FTC clearance by September. The
information provided by ABY, albeit minimal, does not alter the current FTC
timing projection.
Also, ABY confirms that that Canadian Competition Bureau did
in fact continue its review beyond the April 2 deadline. ABY notes the
following regarding the Canadian review process:
"Technically, pursuant to the Canadian
Competition Act, the companies are no longer prevented from closing, subject to
the Canadian competition bureau obtaining a court order preventing
closing."
It is essentially inconceivable that the companies would
attempt to complete the deal without the Canadian approval, but since the FTC
review promises to be the critical regulatory review, the concept is
essentially moot. However, if the Canadian review somehow exceeds the U.S.
review in terms of timing, the companies will almost certainly wait for the
final consent before proceeding with the transaction. Nevertheless, Competition
Canada approval is fully anticipated at some point before HSR clearance.
April 20, 2007 (10:55a) - Status Report
At this relatively early stage of the HSR second
request process, the companies are unwilling to provide any useful information
on the current progress with the FTC. As it has been a month since the second
request, it can be assumed that a substantial portion of the market data has
been submitted and the FTC is now (or very near) in the process of singling out
specific geographic areas of concern.
Again, we will refer to the 2001 Alliance
(PFA) - Bowater (BOW) deal in which the FTC review lasted just over four
months, resulting in unconditional HSR approval. While this case probably will
not go through without at least some minor concession(s), the timing of the FTC
review should be somewhat similar. Of course, this assumes that the companies
have been responding to the second request efficiently, as suggested
above.
It remains the opinion of this publication that the
companies can obtain FTC consent if they work in good faith with the regulator
from day one and if they offer a divestiture or two, rather than forcing the
FTC into demanding concessions further along in the review process. If the
companies take to friendly/open approach, HSR clearance and deal completion is
likely to occur before the end of September 2007.
With respect to the Competition Canada review, the companies
will neither confirm, nor deny that the Competition Bureau extended its review
on April 2. Given the magnitude of this deal, particularly among Canadian labor
groups, it would be extremely surprising if the Bureau did not extend its
review. Thus, it must be assumed that the Competition Canada review remains a
pending matter at this point and the review will most likely continue for the
next few months.
A BOW official claims the company "may provide an
update" on the review processes during next Thursday's conference call,
but at this time will not comment on the FTC and Competition Canada
reviews.
March 20, 2007 (10:50a) - Preliminary Proxy
Statement Filed
ABY filed the
preliminary
proxy statement for this transaction with the SEC yesterday (3/19).
The proxy discloses the following regulatory updates:
(O)n March 19, 2007, each of Abitibi and Bowater
received a request for additional information from the U.S. Department of
Justice thereby extending the waiting period to 30 days after Abitibi and
Bowater substantially comply with this request for additional
information.
Abitibi and Bowater each filed a long form notification to
the Canadian Competition Commissioner on February 19, 2007 and the prescribed
waiting period applicable to this filing will end on April 2, 2007.
AbitibiBowater intends to file an application under the
Investment Canada Act.
Abitibi and Bowater also expect to provide notification of
the combination to the competition authorities in Greece and Turkey, but only
the authorities in Turkey must provide their approval of the combination prior
to completion of the combination.
Abitibi and Bowater are required to obtain the consent of
the Minister of Natural Resources of Ontario at least 30 days prior to
completion of the combination in respect of the timber cutting rights of
Abitibi and Bowater in the Province of Ontario.
As discussed previously, the HSR second request process for
this deal is currently expected to continue into the summer of this year, as
the companies will likely need to work with the DOJ in exploring divestiture
possibilities and finding a suitable buyer(s) if indeed divestitures are
required.
While there exists a very small chance that the current
paper market conditions (and corresponding overlaps) could translate into a
non-conditional DOJ approval, it is much more likely that some conditions will
be applied. Despite the troubles encountered recently for certain paper niches
(newsprint in particular), the magnitude of this transaction almost guarantees
a forced mill divestiture, if not two or three, in this case.
The Competition and Investment Canada reviews certainly pose
a potential issue for this deal, as there is clearly substantial opposition
among labor groups and some public circles in that country. The Canadian
regulators can be expected to put a great deal of time and effort into this
case, and will probably conduct reviews independent from the DOJ -- an
situation that does not occur often in major cross-border mergers.
In short, the companies have fairly sizable task ahead if
they hope to completed the transaction before the end of September. It would
not be at a surprising to see some slippage into the fourth quarter if the
companies fail to work very closely and efficiently with the three key
regulators.
February 21, 2007 (11:40a) - Additional
Analysis
Almost a month after this deal's announcement
and the only vocal opposition seems to be from Canadian labor groups. This is
not terribly surprising given the impact the recent downward trend in the paper
industry has had in Canada, but it should not be completely discounted as a
potential issue where this transaction is concerned.
According to several reports, Canada's Communications,
Energy and Paperworkers Union (CEP) is calling upon Prime Minister Stephen
Harper to hold hearings in the form of a "National Summit" to address
labor concerns with this deal. The overriding concern is the possible (if not
probable) loss of jobs the deal will create as overlapping operations are
closed -- in other words, Canadian mill closures.
Perhaps foreshadowing this eventual development, ABY has
announced the
closing of a mill in Thunder Bay, Ontario (Fort William) and
there are indications that the same fate awaits the ABY operation in
Grand-Falls Windsor.
Other reports suggest that several mills in both the U.S.
and Canada may be closed due to inefficiency in advance of the merger.
This blog-type
reportfrom an industry insider makes the following observations:
"If successful, (the companies) will create
a behemoth controlling 55% of North American newsprint capacity. In contrast,
OPEC controls 41.7% of the world’s oil production.
"I predict that if the merger is approved,
AbitibiBowater will move quickly to shutter 5 to 6 small, inefficient mills,
including Dalhousie NB, Liverpool NS, Kenora ON, and perhaps Lufkin TX. Some
mid-size producers will follow with some closures as well. Ten years ago, such
a merger would have been spiked instantly by regulators. With today’s
economics, however, the merger is likely to be approved."
As this publication suggested previously, the overlaps in
Newsprint, and potentially supercalendered and uncoated groundwood, may result
in forced divestitures from the FTC due to competition concerns. If this does
indeed occur, the divestiture would almost certainly occur on ABY's side in
Canada.
Thus, the concerns raised by Canadian labor groups seem to
have some substance.
As far as specific competition concerns related to the
merger, there has not been much negative reaction to the combination. On the
contrary, most industry sources claim that this deal will essentially halt
declining newsprint prices in the short- and long-term, which is naturally a
major rationale for the merger in the first place.
Before the deal was announced, most analysts predicted
nothing but continued gloom for newsprint, and the paper industry in general.
This brief article from The Editor's Weblog amends a
Goldman Sach's analyst opinion of newsprint in the following way:
"Appert’s forecast could be hindered
by the merger of Bowater and Abitibi, North America’s two largest
newsprint producers. If they did merge, they would control half of the
industry’s newsprint supplies and force a price increase."
The bottom line here is that the companies will be able to
make this deal go through via efficient information and negotiation with
federal regulators. The market and regulatory environment favors a successful
completion of the deal with minimal effort -- relatively speaking -- in terms
of concessions.
The only caveat that exists at this point, as mentioned
above, is the possibility that Canadian labor and politics become involved to
the point that Canadian regulators (specifically, Competition Canada) adopt a
negative view of the deal. At this stage, this possibility is seen as extremely
remote.
The companies should be able to close the deal before the
end of September unless they fail to work effectively with the FTC in providing
information before and after the second request, and in offering remedies
quickly if deemed necessary. The deal will only slip into the fourth quarter if
the companies attempt to downplay the competition issues that clearly exist and
resist the concessions that will probably be required.
February 1, 2007 (11:25a) - Additional Research
/ Analysis
Additional research into areas other than
newsprint has resulted in the discovery of a secondary overlap (Supercalendered
Paper) as well as fairly recent market share data for the "uncoated
groundwood" niche.
This PDF chart shows that there are not only overlaps in the
uncoated groundwood segment, but in specific "brightness" grades
within that segment. Market shares for this segment are provided in the
following chart. However, the data below does not factor in the closure of a
major Stora Enso mill in 2006, which presumably adjusted the market shares of
ABY and BOW upwards significantly.
Uncoated Groundwood (2003)
| Company |
Market Share |
| Abitibi Consolidated |
31% |
| Norske |
11% |
| Bowater |
10% |
| Stora Enso |
11% |
| Nexfor |
8% |
| Kruger |
7% |
| Irving |
4.2% |
| Belgravia |
3.7% |
| Madison |
3.5% |
| Others |
11.6% |
The "supercalendered paper" (SC) overlap appears
to be fairly significant and could also contribute to delays in the FTC and/or
Canadian reviews. Again, the data is a few years old, but it is believed that
there has been marginal changes in the market shares since the data in the
chart below was produced:
Supercalendered Paper 2003
| Company |
Market Share |
| Abitibi Consolidated |
34% |
| Norske |
14% |
| Bowater |
11% |
| Stora Enso |
11% |
| Katahdin |
7% |
| Kruger |
7% |
These two segments are not nearly as problematic as
newsprint, due to the presence of Norske (Canada) and Stora Enso, and others.
However, if the data is even close to being accurate at this time, 41% and 45%
(+/-) market shares will draw some antitrust interest. It is unlikely that
remedies will be required due to these overlaps, although that scenario is
certainly not out of the question. Again, if divestitures are ultimately
required, they would be in the form of selling a single plant to a viable
competitor, which, as discussed yesterday, is not a terribly daunting task in
this industry.
A brief, but excellent overview of the Supercalendered
market is available by
following this link. Note that the theme of this report is
SC's comparative success (profitability) during the general downturn in the
paper market.
This information further supports the assessment that this
deal will not only draw a second request, but that it will be a fairly long
second request process, very likely including divestitures in at least one
product area. Although the companies seem to believe that they can get through
the FTC and Canadian Competition reviews without major, or any, conditions, the
evidence obtained to this point suggests otherwise. Even in a depressed market
for the paper industry, the level of consolidation represented by this deal
will not be view by regulators as non-problematic in the long term.
Yesterdays September / October closing time frame remains
intact for the time being. However, this transaction could easily see
slippage into the fourth quarter of this year if the companies are not prepared
to work with regulators in quickly resolving competition concerns.
January 31, 2007 (11:50a) - Initial
Analysis
Rapid consolidation within the pulp and paper
industry slowed considerably in the early 2000's for good reason: there simply
weren't many companies remaining. With this deal, the two dominant newsprint
producers will combine, leaving every other player in this niche far behind in
terms of market share. This will be the primary delaying factor for the
transaction.
Oddly, with the decline of pulp/paper mergers, sources for
data on the industry seem to have either vanished or not kept up with market
statistics for product production and sales. Perhaps this is because the
various niches in the industry have remained relatively stagnant over the last
few years -- at least in terms of market share by company.
The newsprint niche has clearly changed, for the worse, in
the last decade due to the rise of the Internet and broad economic conditions.
The companies will surely attempt to hammer home this concept in the course of
the FTC and Canadian Competition reviews. They would be well served to draw on
sources such as the Newspaper Association of America, which has recent
published articles focusing entirely on the decline, if not demise, of
newsprint. This
August 2005 article, "The Newsprint Plunge,"
includes the following passages:
"There’s no getting away from the fact
that the North American newsprint market is disappearing at a surprising rate.
Benchmark indicators for newsprint consumption in North America are daily
newspapers, and, according to the Pulp and Paper Products Council in Montreal,
U.S. dailies used 4.3 percent less newsprint in the first four months of 2005
than they did in the same period last year.
"Nevertheless, prophets of doom have for decades
proclaimed the end is near for printed newspapers, and a good number of those
prophets have had their obituaries printed in those same newspapers. While
market participants have much to be concerned about, newsprint producers and
publishers are doggedly dealing with industry change.
"Most of the capacity cuts required for the whole North
American newsprint industry have been made by the two biggest producers,
Abitibi-Consolidated Inc. in Montreal and Bowater Inc. in Greenville, S.C. A
measure of their success is five straight price hikes in less than three years,
driven not by demand-pull but by supply-push and mill operating rates of around
97 percent."
In many ways, this deal is reminiscent of the current
JH-MFW deal, where two dominant players in a firmly
established, yet struggling market, are hoping to convince regulators that
consolidating is the only way to survive under current conditions. Both printed
checks and printed newspapers are never going to vanish completely, but the
companies will argue that the respective competitive landscapes have evolved to
the point where their mergers are justified.
Nevertheless, the numbers certainly do not lie where
newsprint market share is concerned. According to the NAA chart below, ABY-BOW
will command more than 55% of the market, with no other competitor coming close
to 10%. This is problematic.
 Even ABY's own annual reports show illustrate the
two company's dominance in the newsprint market, as seen in this chart:
 Regardless of source, it is obvious that this
combination presents a very real competition issue, despite current market
conditions and the concept of "disappearing newsprint." A second
request here is a foregone conclusion. The only questions are will divestitures
be required and how long will the process take to complete. Some guidance for
these issues can be gather from the 2001 PFA-BOW deal, in
which newsprint was also the second request issue and in which the divestiture
of a single plant (Coosa Pines) was widely expected, but ultimately did not
occur. That transaction obtained FTC/DOJ clearance in just over three months
after the second request was issued.
This deal will probably not get through the HSR review as
quickly, or without conditions. Again, the data suggests that the companies
will have far too much control over North American newsprint and will very
likely need to remedy the situation via a plant sale or two. Perhaps Coosa
Pines? As there is no shortage of viable buyers available for this sort of
operation -- Boise Cascade looks to be a prime candidate -- any divestiture
situation should not be terribly complex. But is is very difficult to conceive
of this deal going through without some conditions to appease regulators both
in the U.S. and Canada.
There is also a secondary product issue which may surface
during the competition reviews. Both companies are significant players in the
"Groundwood" niche, as illustrated in the chart below. Unfortunately,
recent data with specific market share percentages has not been located as of
yet, but there is no doubt that ABY has a large portion of the groundwood
market (roughly 35%) and BOW appears to have just under 10%. Naturally,
additional research will be conducted into this potential issue.
 At this early stage, the overall
assessment of the transaction is fairly positive. There have been some
grumblings from forestry unions (particularly in Canada) and quite a bit of
reports highlighting the potential competition concerns involved in the
combination, but there does not appear to be any issue here which can not be
resolved fairly easily.
Deals in this industry tend to be very lengthy in general
(see timelines below), so it would not be at all surprising if the length of
this one reached or exceeded the 200-day mark. It would be a major
accomplishment if the companies could complete the deal before the end of this
summer, but that would involve a situation where no conditions were applied by
the FTC. It is more likely that the second request process will carry the
transaction well into the early fall of this year -- roughly a September /
October time frame.
Additional research findings and analysis will be posted
shortly.
January 31, 2007 (9:50a) - Timelines -- Recent
Related Transactions
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