PaperlinX will sell its Australian manufacturing business, Australian Paper, to Japanese-based Nippon Paper for $700m, with the sale expected to be completed by mid 2009. However the deal will exclude Australian Paper's two Tasmanian mills at Burnie and Wesley Vale, with the company to decide their fate following a review over the next few months.
The sale, which is centred around Australian Paper’s major asset, the Maryvale paper mill, will consist of $600m cash, with 10 per cent payable on signing and a range of other considerations, which includes assumed liabilities and an earn-out that will allow PaperlinX to participate in positive earnings growth of the divested operations over the next three years.
Potential outcomes of the review of the two Tasmaninian mills include retention of the existing business model, partial closure, complete closure or sale.
David Meiklejohn, chairman of PaperlinX says this divestment is a major step in the transformation of PaperlinX.
He says, “It substantially strengthens our financial profile at a time of volatility and uncertainty in global economic markets. The board believes this transaction is in the best interest of the company and its shareholders.”
Meanwhile, Tom Park, managing director of PaperlinX adds the sale of the manufacturing operations will enable the company to sharpen its focus on its core operations of paper merchanting and distribution.
Park says, “It will also be a positive for Australian Paper and its employees as they become a part of a significant international paper manufacturer with all the opportunities that brings.”
As a direct result of the transaction PaperlinX will record a write down of around $600m in relation to the sale. The announcement of the company’s interim results will be delayed until February 27 to allow accounts to be adjusted for changes related to the transaction.
Nippon Paper claims to be a key player in the Japanese paper market and has a long term strategic commitment to paper manufacturing in the Asia Pacific region.
Park continues, “The sale of Australian Paper to Nippon Paper establishes its position as an important part of an international paper manufacturer and creates opportunities that would not exist as a stand-alone domestic manufacturing entity.”
He adds, “PaperlinX and Nippon paper will maintain a long term alliance for the distribution of paper in Australia.”
