Consolidation of big names ‘will bolster paper sector’

The comments came as paper and packaging chief executives from groups including Huhtamaki, SCA, Smurfit Stone and Stora Enso told a Reuters conference last month of plans to close plants or sell divisions.

UK-based packaging experts have responded that this type of consolidation is likely to strengthen the paperboard sector.

PricewaterhouseCoopers’ forest, paper and packaging leader Clive Suckling said the European market’s fragmentation made it more difficult to mitigate lacklustre demand in an economic downturn.

“It would be desirable to have more consolidation in Europe, which is a pretty mature market,” he said. “It’s important to be able to manage capacity or you will repeatedly get oversupply, which impacts prices.”

At last month’s Reuters Paper Summit in Helsinki, leading manufacturer International Paper (IP), which has recently bought Weyerhaeuser, and Smurfit Stone revealed plans to close plants in the US due to the slowdown and as a bid to drive consolidation.

Suckling said sector consolidation in North America had benefited from “more realism about the value of businesses” than in Europe, and the influence of private equity on potential deals.

“North America is seen as being ahead of the game in getting to grips with the core fundamentals [of businesses],” he said.

Europa Partners packaging specialist Nicholas Mockett said that “vendors need to adjust their expectations” to the fact that buyers could only afford modest prices.

He added that paper manufacturers that responded to good economic situations by significantly increasing capacity could suffer as the economy declines. “There will be more consolidation, which will improve the concentration of the market. But it will be interesting to see what happens to paper in a stagnant economy.”

Packaging Federation chief executive Dick Searle warned, though, that it was important to consolidate businesses “for a good reason”.

“Big companies can buy small ones in the belief that can make them better,” he said. “But they can actually get worse as the entrepreneurial spirit can get lost within a large corporate structure. Most success happens when the company is close to its market.”

Reuters: what they said
“I wouldn’t rule out [selling other packaging plants], because we aren’t going to spend time or money in regions or businesses where we don’t see at least as good a return as in hygiene.”
Jan Johannson, chief executive, SCA

“We’ll be in a position later this year to start talking about where some of the box plant rationalisations might take place.”
Tim Nicholls, chief financial officer, International Paper

“The good companies will come out of this stronger than before. Maybe we will finally get our act together and make decisions that need to be made and start making some real money one day.”
Jouko Karvinen, chief executive, Stora Enso

“Packaging and paper companies have been together in many instances and in most cases they lose their shirt. One has to be pragmatic. While paper making is a global business, producing packages is local because it makes no sense to transport packaging around the globe.”
Jukka Moisio, chief executive, Huhtamaki

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