Magazine article Editor & Publisher

E&P Technical: Partners in PAPER

Magazine article Editor & Publisher

E&P Technical: Partners in PAPER

Article excerpt

With SP Newsprint Co. still exploring "strategic alternatives" in May, newsprint analysts east and west offered perspectives on the fate of the Atlanta-based, publisher-owned newspaper recycler and newsprint manufacturer, as well as a similar partnership operated near Spokane, Wash.

Owned in equal parts by affiliates of Cox Enterprises Inc., Media General Inc., and the McClatchy Co., SP Newsprint engaged TD Securities to consider "a range of options," including sale of the company and its SP Recycling subsidiary.

"They're primarily focused on a sale," a spokeswoman for SP tells E&P.

Newspaper publishing and newsprint production have experienced continuing declines in sales in recent years. Far and away the biggest users of newsprint, newspapers during those same years have reduced press runs, sometimes reduced page counts, and often reduced page widths, thereby decreasing demand and consequently forcing capacity reductions and conversions at the paper mills.

Because times are tough for both industries, it may well be the right time for newspapers to sell their mills and for papermakers to buy them: Newsprint manufacture never was a core newspaper asset, and analyst Bernard Bottomley argues that today it is even "less a core asset than ever before," as newspapers focus on their missions of gathering and delivering news and information (and not necessarily on paper). Meanwhile, newsprint manufacturers, faced with further consolidation in their industry, may see an opportunity to grow by acquiring operations with longtime customers.

"While we have delivered strong returns for our owners over time, the newsprint marketplace is evolving. We must align the business to capitalize on these changes as well as new opportunities," SP Newsprint President and CEO Joseph R. Gorman said in May. "The decision to explore various scenarios," he continued, "will ensure that the company is better able to compete in a newsprint marketplace that is experiencing significant restructuring activity."

Producing almost a million tons annually, SP counts itself the second-largest maker of all-recycled newsprint and the fifth-largest North American newsprint producer, with 2006 sales of $638 million. Its output goes to its owners and to others' newspapers, mostly in the southeast and west, where it has mills in Dublin, Ga., and Newberg, Ore., that are supplied by its paper-recovery subsidiary.

SP stated it would have no further comment on the review process until "a definitive transaction is approved."

In the meantime, citing the "industry dynamics" to which Gorman referred, SP's spokeswoman points to the proposed merger of North America's two largest newsprint makers, Montreal-based Abitibi-Consolidated and Bowater Inc., headquartered in Greenville, S.C. If the companies receive regulatory approval, their merger will account for roughly half of North America's market share.

"First and foremost the marketplace has seen increased restructuring momentum due to significant declines in newsprint consumption in North America," the spokeswoman says. "As pricing pressure from newspaper companies is coupled with rising production costs" from more-expensive energy and fiber, "the newsprint industry is being forced to restructure to align itself with the realities of the marketplace."

She adds that SP sees its industry's future "defined by both growth and consolidation strategies; some newsprint companies will seek to exploit economies of scale by growing and others will choose to narrow their focus on a few customers or regions in order to better compete."

At Resource Information Systems Inc., which conducts forecasts and analyses of the international forest products industry, Senior Economist Kevin Conley says he was surprised by SP's decision to study its options because the company is "one of the low-cost newsprint producers in the U. …

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