Two Canadian Forest Products Companies Cut Their Losses Slump in Pulp and Newsprint Markets Kept Bottom Line in the Red

By Fred Langan, | The Christian Science Monitor, August 18, 1993 | Go to article overview

Two Canadian Forest Products Companies Cut Their Losses Slump in Pulp and Newsprint Markets Kept Bottom Line in the Red


Fred Langan,, The Christian Science Monitor


CANADIAN Pacific got tired of waiting for the pulp and paper business to turn around, so it sold its forest product subsidiary. Some analysts think it sold too soon.

The $698 million (Canadian; US$532 million) of its 61-percent interest in Canadian Pacific Forest Products Ltd. has done wonders for the balance sheet of Canadian Pacific Ltd. of Montreal. Apart from taking in the cash, it shed $1.5 billion in debt.

"Canadian Pacific will not have to incur any further losses from CP Forest Products," says Frederick Larkin of Bunting Warburg, a brokerage firm in Toronto.

"CP Forest makes 25 percent of its revenue from newsprint and 25 percent from pulp. The rate of recovery in those sectors has been slower than anyone predicted," he says. Focus on core business

Canadian Pacific, the company which owns railways, hotels, oil and gas, and huge coal deposits (which it ships on its railway, ships, and trucks), says it wanted to focus on its "core" businesses. Company chairman William Stinson did not actually say he was tired of pouring money into CP Forest, but he did call it the "most troublesome sector."

"Pan Canadian Petroleum is the jewel in its energy holdings," Mr. Larkin says. "Selling CP Forest is a significant step because it slims down the range of activities, narrowing the focus."

CP Forest Products lost $189 million last year and lost another $112 million in the first six months of this year. The firm has spent billions modernizing its mills and plants; it is now the largest single supplier of recycled newsprint in North America.

"Over the past three to four years CP Forest has spent some $2 billion. Write-offs of old, inefficient facilities and major environmental expenditures {are} behind them," wrote Jaak Puusepp, the Vancouver-based forest analyst for RBC Dominion Securities. A major market position

CP Forest company was formed in 1988 out of CIP (Canadian International Paper, the Canadian unit of International Paper) and Great Lakes Paper. It is one of the largest pulp and newsprint firms in the world.

Because of CP Forest's dominant position in the market and its upgraded facilities, many people thought Canadian Pacific sold too soon. …

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