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South African Firm to Buy Division of Scott Paper : Acquisitions: The unit, S.D. Warren Co., controls 27% of the U.S. market for coated paper.

October 11, 1994|From Times Wire Services

NEW YORK — Scott Paper Co. said Monday that it will sell S.D. Warren Co., its printing paper division, to an investor group led by South Africa's Sappi Ltd. for $1.6 billion.

The highly leveraged deal is the first significant foreign acquisition by a South African company in the United States in 20 years. It would make Johannesburg-based Sappi the world's largest producer of coated wood-free papers.

The other investors are DLJ Merchant Banking Partners and its affiliated funds, and UBS Capital Corp., the U.S. private investment arm of Union Bank of Switzerland.

The deal ends a major part of a restructuring by the world's largest tissue producer. Scott, which is trying to transform itself from a lumbering paper giant into a low-cost, fast-moving consumer products company, previously announced plans to slash a third of its staff.

Warren, which was put up for auction in May, controls 27% of the nation's coated paper market, roughly twice that of its nearest competitor. It produces 1.25 million tons a year of coated, uncoated, specialty and technical papers at two mills in Maine and one each in Michigan and Alabama.

Scott stock rose $3.25 to close at $64.75 on the New York Stock Exchange. Some analysts had questioned whether Scott would ever find a buyer for Warren, no matter what the asking price.

"There was a lot of skepticism about the deal and the possibility of getting more than $1.5 billion for Warren," Bear Stearns analyst Linda Lieberman said.

Scott had initially hoped to raise $2 billion from the sale, but a number of big U.S. bidders had dropped out of the running.

The sale marks the completion of one of the key initiatives by Chairman Albert Dunlap, who was hired in April to revitalize the 115-year-old company.

He said the company will soon begin trying to sell other paper-related holdings such as woodlands, pulp mills and energy corporations. The first of those decisions could be announced in a month, Dunlap said.

"I am more optimistic than ever about Scott's future," said Dunlap, who took over the company in April and has been streamlining ever since.

Sappi, Africa's leading paper and forest products company, has previously acquired paper manufacturing subsidiaries in Germany and England. It is the third-largest manufacturer of coated free-sheet paper in Europe, with net sales of $1.7 billion so far this year.

Sappi will contribute $250 million to the equity of Warren, with $25 million by UBS and $125 million by DLJ, a unit of Equitable Cos.

Chemical Banking Corp. will provide $1.1 billion in debt financing. The DLJ Bridge Fund will make a $375-million short-term bridge loan, which will be refinanced after the deal closes through an offering of high-yield bonds underwritten by Donaldson, Lufkin & Jenrette Securities Corp.

The deal is expected to close by mid-December, subject to approval by South African, European and U.S. regulators.

Scott said proceeds from the sale would be used to develop its core tissue business and pay down corporate debt. It will also consider a new stock buyback program following the sale.

In six months, Dunlap has slashed Scott's work force by 11,000 using aggressive methods that have earned him the name "Chainsaw" and "Rambo in Pinstripes."

Warren, with assets of $1.6 billion, had sales of $1.16 billion last year and accounted for 24% of Scott's revenue.

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