Abitibi-Norske-Hansol Finalize Asian Newsprint JV Deal

A deal arranged last month between Abitibi-Consolidated Inc., Norske Skog, and Hansol Paper Co., creating a leading joint-venture newsprint and groundwood paper company in the Asian-Pacific region, has now been finalized. Details of the transaction, to close this fall, have also been announced.

Basically, the agreement calls for each partner to purchase a one-third stake in the joint-venture, which encompasses the Asian-Pacific groundwood paper operations and sales of the three parties. In addition, as previously announced, the joint-venture will purchase Hansol's Korean and Chinese newsprint businesses as well as Norske Skog's Shinho newsprint businesses in Korea and Thailand for $970/m.t. All growth by the partners in the region will be through the joint-venture.

Mills managed by the joint-venture will have a total annual capacity of more than 1.4 million m.t., representing a 15% market share in the Asian-Pacific region and a 40% market share in non-Japan Asia. Altogether, the joint-venture will own:

• 100% of Hansol's Chonju, Korea mill (1 million m.t./yr.)

• 53% of Hansol's Shanghai, China mill (125,000 m.t./yr.)

• 100% of the Shinho, Korea operations (180,000 m.t/yr)

• 75% of the Shinho, Thailand mill (120,000 m.t./yr).

James Doughan, president and CEO and Ron Oberlander, operating chairman of Abitibi-Consolidated, pointed out that the joint-venture will provide all three partners a presence on three continents. "We will have excellent local production in a long-term growth region and the transaction will be accretive to the earnings of each partner immediately," Doughan said.

According to the agreement, the joint-venture will market all tons sold in the Asian-pacific region, including those exported into the region by Abitibi-Consolidated and Norske Skog. Abitibi-Consolidated will sell all of the joint-venture's tons that are exported to the Americas, while Norske Skog will sell all of its European, Middle East, and African exports. The joint-venture intends to optimize newsprint freight flows among the continents.

"The joint venture will have the great combination of unrivaled marketing expertise and modern, low-cost assets backed by strong operating experience,'' said Jan Reinas, president and CEO of Norske Skogindustrier. "The Chonju mill is the lowest-cost mill in Korea. The collective caliber of the partnership holds great potential for the joint-venture."

To be financed with on-recourse debt, the joint-venture's initial debt-to-capitalization ratio is expected to be approximately 60%, and each partner will contribute U.S. $172 million of equity upon closing. The joint-venture partners are currently finalizing regulatory approvals and underlying agreements.

The head office of the joint venture company will be located in Singapore. The Board will be comprised of seven voting members--two from each partner and the CEO of the joint venture. The partners will staff the management of the joint venture with internationally experienced executives. Omund Revhaug, currently Norske Skog's executive VP for business development, will be the joint-venture's chairman and CEO. Andre Van Hattum, currently Abitibi-Consolidated's executive VP international, will be president and COO, and will succeed Revhaug as CEO in three years. Se Kang Oh, currently Hansol's director of strategic planning, will be chief financial officer.

"This union of three important paper companies in Asia is a landmark transaction in the paper industry,"' said Dong-Kil Cho, vice-chairman of Hansol Paper. "Together, we will create the strongest newsprint venture in the region and, when completed, the largest Asian newsprint operation outside of Japan."'

Abitibi-Consolidated is the world's largest manufacturer and global marketer of newsprint and a leader in uncoated groundwood papers. Operating 18 mills throughout North America and the UK and selling product into more than 50 countries, the company's vision is to be the world's preferred marketer and manufacturer of communications papers.

Hansol Paper is the second largest paper manufacturer in non-Japan Asia with an annual production of 2.3 million m.t. of newsprint, woodfree paper, and white duplex board. The company has four mills in Korea and one mill in China, and exports more than 40% of its production outside of Korea. Offshore joint-venture investment is one of the most important strategies for its continued growth, utilizing its powerful strategic position in the China market.

Norske Skogindustrier is a leading European manufacturer of newsprint and magazine paper. Based in Norway, the group has seven mills in Norway, France, Austria, and the Czech Republic. Its sales organization covers more than 50 countries on all continents. The group's strategy is to become a global player in the publication papers industry.