TUESDAY, 1.00PM
SAPPI Limited has become the world’s largest producer of coated wood-free paper by acquiring a 91,5% stake in KNP Leykam, Europe’s leading producer of coated wood-free paper and lightweight coated paper.In a R3,5-billion deal with Dutch group NV Koninklijke KNP BT, Sappi will hold a 26% market share in the US coated wood-free market, 22% of European markets and 60% in Southern African markets. KNP Leykam has annual sales of R5,1-billion.
Analysts say the deal will consolidate Europe’s paper industry, which has been typified by many small producers and overcapacity. The multi-billion dollar purchase price will be settled by the issue of shares and zero coupon notes. Sappi shares valued at R1,9-billion will be issued to KPN BT, giving it a 15% stake in Sappi. KNP BT will also receive zero coupon notes with a par value of R1,6-billion, which mature after two years.
“[The merger is] expected to result in significant earnings benefits to Sappi,” said Sappi chairman Eugene van As, through market rationalisation and product grade optimisation. Sappi will incur a one-off cost of R150-million in a rationalisation programme at KNP Leykam, that will see some paper machine closures and layoffs at the European producer, diluting next year’s share earnings. But, in 1999, after-tax benefits are expected to be more than R500-million a year, with the debt-to-equity ratio falling to 78% from 96%, boosting cash flow.