Abitibi-Consolidated, Bowater announce merger plans

Abitibi-Consolidated Inc. and Bowater Incorporated on January 29 announced a definitive agreement to combine in an all-stock merger of equals. The combination will create a new leader in publication papers – an operationally and financially stronger company better able to meet changing customer needs, compete more effectively in an increasingly global market, adapt to lower demand for newsprint in North America and deliver increased value to shareholders.

The combined company, which will be called AbitibiBowater Inc., will have pro forma annual revenues of approximately US$7.9 billion, making it the third-largest publicly traded paper and forest products company in North America and the eighth-largest in the world. The current combined enterprise value of the two companies is in excess of $8 billion.

John W. Weaver, president and chief executive officer of Abitibi-Consolidated, will be executive chairman of AbitibiBowater; and David J. Paterson, chairman, president and CEO of Bowater, will be president and CEO of AbitibiBowater. The AbitibiBowater board of directors will consist of 14 directors, seven from each company.

AbitibiBowater's headquarters and executive office will be located in Montréal, Québec, with a U.S. regional manufacturing and sales office in Greenville, S.C. The company, which will be incorporated in Delaware as the new parent company, will apply to list its shares on the New York and Toronto stock exchanges.

Under the terms of the transaction, each common share of Abitibi-Consolidated will be exchanged for 0.06261 common share of AbitibiBowater, and each Bowater common share will be exchanged for 0.52 common share of AbitibiBowater. The exchange ratio will result in 48 percent of AbitibiBowater being owned by former Abitibi-Consolidated shareholders and 52 percent of AbitibiBowater being owned by former Bowater shareholders.

The combination is expected to generate approximately US$250 million of annualized cost synergies from improved efficiencies in such areas as production, selling, general and administrative (SG&A) costs, distribution and procurement. These synergies are in addition to cost saving initiatives already in process at both companies.

Weaver said, "The new AbitibiBowater will be a global leader headquartered in Canada with a brighter future than either company would have on its own. The combined company's ability to realize significant synergies will increase shareholder value, improve our financial flexibility and better position us to compete in today's increasingly competitive global marketplace. Combining our companies is also the best way to continue to contribute to the local and regional economies of the communities in which we operate."

Paterson said, "This is a logical strategic step to address the realities of today's marketplace. A more efficient manufacturing platform will enable us to bring our customers better product quality, new product innovation, and improved logistical flexibility. Both Abitibi-Consolidated and Bowater shareholders will benefit from the upside potential of a financially stronger company that is able to generate significant cost synergies, improve its balance sheet, and compete more effectively."

AbitibiBowater's product lines will include newsprint, uncoated and coated mechanical papers, market pulp and wood products. The company will also be one of the world's leading consumers of recycled newspapers and magazines as it builds on the existing efforts of both companies to be leaders in environmentally sustainable production practices.

AbitibiBowater will own or operate 32 pulp and paper facilities and 35 wood product facilities located mainly in Eastern Canada and the Southeastern U.S. Pro forma combined paper production capacity is approximately 11.3 million tonnes per year and about 3.1 billion board feet of lumber.