Consolidation means publishers are losing the advantages competition offers, but some observers say that may not be all bad.
* For those watching the paper industry, it hasn't been a good time to blink. In February, two Finnish companies announced their intentions to purchase two of the largest paper manufacturers in the United States. First, Helsinki-based UPM-Kymmene Corp. agreed to pay $6.5 billion for Stamford, Connecticut-based Champion International Corp. The following week, Stora Enso Oyj, also of Helsinki, said that it would buy Wisconsin Rapids-based Consolidated Papers for $4.9 billion. If these deals go through, production of approximately 40 percent of worldwide coated mechanical paper capacity--the category magazines most commonly print on--will fall under the province of two players.
Foreign paper manufacturers with their sights set on growth have long eyed the United States, the world's largest market for paper. The United States accounted for more than one-third of the 14.8 million tons of coated mechanical paper that was sold worldwide in 1999, according to Resource Information Systems Inc. (RISI), a Bedford, Massachusetts-based economics forecasting firm for the forest products industry. These two acquisitions afford both acquiring companies the established marketing and distribution platforms critical to each company's North American expansion.
In most consolidations, increasing efficiency by eliminating redundancies is a primary objective. Some publishers are concerned that decreased competition among paper manufacturers might affect pricing--or that some machines might be closed down, causing the market to tighten up. "We generally have volume commitments from paper companies, like most of your larger companies, so it's not as much of an issue for us," says one production executive at a major New York City-based publisher. But he adds, "Honestly, I think some of the smaller users might feel the crunch."
Neither company has disclosed plans to consolidate operations by phasing out unnecessary capacity. But even so, the machines that produce magazine grades aren't likely targets, says RISI vice president John Maine. "We might see these mergers result in the shutting down of some older, inefficient machines," he says, "but there are fewer inefficient machines in the magazine paper market than in markets such as newsprint, and the market needs all the capacity it can get right now," Maine explains. …