Finland''s Stora Enso Oyj, the largest paper manufacturer in the world, has agreed to sell its North American paper operations to Miamisburg, Ohio-based NewPage Corporation for $2.07 billion. NewPage is owned by Cerberus Capital.

NewPage will pay Stora $1.5 billion in cash, $200 million in vendor notes and 19.9 per cent in shares valued at $370 million in the new company that will combine NewPage and Stora Enso North America operations. NewPage will also assume net liabilities of $450 million. The Finnish group will use the sale proceeds to bring down its debts.

As part of the transaction, Stora Enso will divest eight publication, fine paper and speciality paper mills which will reduce the Group''s annual production capacity by 2.75 million tonnes and number of personnel by about 4,350. The divested mills include Biron, Duluth, Kimberly, Niagara, Port Hawkesbury, Stevens Point, Whiting and Wisconsin Rapids mills. Stora Enso will retain Corenso''s North American operations. Corenso produces cores and coreboard for industrial use in various fields of business.

NewPage, one of the biggest US paper companies, has a 22 per cent share of the US coated-paper market. The Stora Enso North America deal will take its market share to 28 per cent in coated paper and 28 per cent in supercalendered-paper. The acquisition will also give it specialty operations making paper for bottles and cans.

NewPage and Stora Enso North America''s combined pro forma annual sales were approximately $4,300 million in 2006, and EBITDA was $525 million. The combined entity will have 12 paper mills with the capacity to produce 4.75 million tones of paper and related products. Stora, which will retain 19.9 per cent interest in this entity, will share the benefits, including value creation from significant cost synergies.

Stora''s misadventures in America began with the acquisition of Consolidated Papers Inc. of Wisconsin Rapids for $4.9 billion in 2000. That didn''t work out well, and the Finnish group has been in trying hard to slash costs and write down assets.

Lower demand for US newsprint and magazine paper has resulted in a 6 per cent drop in and the price of newsprint and magazine paper. The rise of the dollar against the euro made matters worse, affecting Stora Enso''s earnings from its North American division. The business has also been affected by rising wood costs and a weak market for its products. In the past two years, the group has closed some mills, cut 1,600 jobs, and write down the value of its assets by $1.4 billion.

Jouko Karvinen, CEO, Stora Enso

Says Stora Enso Group CEO Jouko Karvinen, "We believe that by combining Stora Enso''s North American operations with those of NewPage, owned by Cerberus Capital, a leading private investment firm, we are contributing to the formation of a highly attractive player in the North American paper industry. This is the first major step in focusing our operations to improve the long-term earnings of Stora Enso. The divestment will simplify our Group structure and strengthen our focus on Europe as well as Stora Enso''s growth markets."

According to the Stora Enso management, the financial impact on the group will be:
sales reduction of €1,950 million, based on 2006 levels, an EBITDA reduction of €189 million, a capital employed reduction of €1,750 million, and a change in the debt/equity ratio from 0.64 to 0.42, including the impact of reversing the impairment from €1,300 million to €500 million in the third quarter of 2007. The 19.9 per cent ownership in the new company is considered as a financial investment and accounted for as an asset held for sale.

The Stora-NewPage deal is further proof of the consolidation happening in the world paper industry. Earlier this year, Svenska Cellulosa, Europe''s biggest tissue maker, sold its North American packaging operations to Metalmark Capital for $400 million; it will focus on emerging markets instead. UPM-Kymmene, Europe''s second-biggest producer of paper, is also facing severe problems in the US. Around 100 paper and paperboard mills in the US are reported to have shut down in the past six years.