Wood you be­lieve it!

Did Sappi buy the mills to close them?

Finweek English Edition - - COMPANIES&MARKETS - SHAUN HAR­RIS shaunhar­ris@ya­hoo.com

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.

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