Abitibi Acquires Stone Container's Snowflake Newsprint Mill

Abitibi-Consolidated is acquiring Stone Container Corp.'s Stone Snowflake Newsprint Co. in Snowflake, AZ. Included in the $250-million deal are two paper machines with a combined capacity to produce 287,000 m.t. of 70% recycled newsprint, a 56-mw power plant (providing the mill with 95% of its energy requirements), and a 38-mile railroad. Stone retains ownership of a 124,000-m.t/yr corrugating medium machine at the mill. Abitibi will operate the medium machine for Stone, which uses the output to make corrugated boxes.

Both newsprint machines are Beloit twin wire units. One has a Bel-Baie former, with a trim width of 300 in. and an operating speed of 3,200 ft/min. The other 240-in.-trim newsprint machine has a Bel-Bond former and runs at 3,000 ft/min. The corrugating medium is made on a Beloit fourdrinier machine that has a trim width of 153 in. and operates at 1,700 ft/min. Recycled furnish for the newsprint machines is produced with two deinking lines, supplied primarily by Beloit and Ahlstrom. The kraft furnish for corrugating medium is made with six batch digesters, and a combination of grinders and refiners provide the mill's groundwood component.

"The planned sale of our newsprint operations at Snowflake to Abitibi-Consolidated effectively ends our direct involvement in the newsprint market," said Roger Stone, chairman, president, and CEO of Stone Container. The transaction is expected to close by the end of the third quarter.

Jim Doughan, president and CEO of Abitibi, stated that "the Snowflake mill has an outstanding strategic location and will be an excellent addition to our portfolio. This acquisition fits our growth strategy for North America very well, it will provide better returns than our cost of capital and be immediately accretive to our earnings. In fact, it will be more accretive than a share buy back even at our currently depressed share price."

John Weaver, executive VP and president of Abitibi's newsprint operations and sales, added that "we already know this mill's product and have an established order book with our customers. Snowflake has a strong cost position with its great combination of recycled capacity and power self-sufficiency. When we have completed our plans to convert the mill to 100% recycled in 1999 and have completed our overall productivity gain plan, we believe that Snowflake will be the lowest delivered cost mill in our newsprint group as well as one of the best in North America."

Earlier in the third quarter, Stone had monetized other miscellaneous newsprint assets for an additional $50 million, bringing total expected proceeds from newsprint-related assets to approximately $300 million. The company explained that these transactions are part of an effort announced last fall to divest non-core assets and apply the proceeds toward reducing its $4.6 billion debt.

However, Stone remains indirectly involved in the newsprint market through its 25.2% ownership stake in Abitibi, held through a Canadian subsidiary. Stone plans to sell its stake in Abitibi, as announced last year, but only under more favorable market conditions.

Abitibi-Consolidated is a leading manufacturer and global marketer of newsprint and uncoated groundwood papers. Operating 18 mills throughout North America and the U.K., and selling product into more than 50 countries, the company's vision is to be the world's preferred marketer and manufacturer of papers for communication.

Stone Container is the world's largest unbleached paper and packaging producer. Its product lines include containerboard, corrugated containers, kraft paper, and paper bags and sacks. Headquartered in Chicago, the company has manufacturing facilities and sales offices in North America, Europe, Central and South America, Australia, and Asia.

This past May, Stone and Jefferson Smurfit Corp. announced a definitive merger agreement between the two companies. The merger cleared regulatory reviews in the U.S., Canada, and Europe during July. The companies have jointly filed a draft of the Merger Proxy Statement with the Securities and Exchange Commission (SEC). Following SEC approval, proxy statements will be mailed to both companies' stockholders.