Wood you believe it!
Did Sappi buy the mills to close them?
WHEN SAPPI BOUGHT four paper mills from M-real two years ago it offered lots of positive reasons for the deal. Finweek questioned the acquisition at the time and shareholder activist Theo Botha was one of the few minority shareholders to object to the transaction. The way it’s panning out, the deal now looks even more questionable.
In a transaction document at the time Sappi said: “Sappi believes that these benefits of its geographic diversity will be increased by its expansion into Finland and Switzerland and its increased presence in Germany as a result of the transaction.”
One of the former M-real mills – the Kangas mill in Finland – has already been closed. And it seems very likely the Biberist mill in Switzerland will follow next. Possibly two gone, two left – and paid for in a controversial rights issue and some additional expensive debt (that Sappi is currently restructuring to lower rates). Why did it really buy the mills?
At the time, a fund manager (who can’t be named because he was party to the deal) responded to a question about why Sappi was buying the mills with an off-the-cuff comment: “They’re buying them to close them down.” Maybe he was right.
Says Botha: “They never told shareholders they were buying the mills to close them down. After investing so much money, why is the South African company left with the capacity problem? It should have left the mills with M-real and let them close them down.”
Sappi might now be doing the right thing: the market has reacted quite favourably to its second quarter update and debt refinancing. But shareholders might be miffed. And they haven’t seen a dividend from Sappi since 2008.