Stora Enso, the world's top paper and board maker, said on Friday it is selling its North American unit to NewPage Holding for $2.52 billion, sending its shares sharply higher.
NewPage Holding is a subsidiary of private equity firm Cerberus.
The move was seen as a precursor to wider consolidation the industry suffering from overcapacity which has kept a lid on prices in recent years.
Shares in Stora jumped on the news and were 7.4% higher at 14 euros, valuing the firm at 11 billion euros ($15.4 billion). Stora 5-year credit default swaps were 15 basis points tighter at 80 basis points after hitting 75.
"This is the first major step in focusing our operations," Jouko Karvinen, Stora Enso's chief executive, told Reuters. "Our main target is to improve profitability and we will choose the races we can win in."
The deal will free resources for its businesses in Europe and in emerging markets, Stora said.
Stora paid 4.9 billion euros for Consolidated Paper in 2000 to establish a strong presence on the North American market. It has been writing down assets there ever since.
Stora's profits have been below its own target since 2000.
"The U.S. has been a trouble spot for Stora Enso for quite a while and this shows that the management is ready to change," said Soren Linde Nielsen, analyst at Jyske Bank in Copenhagen.
Evli analyst Teemu Salonen said that the price looks good and relative to profitability it is almost great.
Stora CEO Karvinen told Reuters the industry needs further restructuring: "Also outside the North American market the industry needs consolidation and capacity cuts."
The deal was positive for Stora Enso since it allowed the management to concentrate on Europe, Nordea analyst Harri Taittonen said.
"Company focus crystallized to Europe, where problems are formidable, as fundamentals have weakened with stagnating prices and weak dollar. Expectation of consolidation pulls up also Stora's rivals."
UPM-Kymmene rose 3.3% and M-real shares were up 3.7%.
"The deal shows that private equity has not disappeared with the market turmoil, and upkeeps the speculative component," said fund manager Mika Leskinen at OP-Delta, which owns 0.5% of Stora.
No Result Impact
The transaction includes eight publications, fine paper and specialty paper mills, which will reduce Stora's production capacity by 2.7 million tonnes and the number of staff by slightly over 4,000.
The deal would not impact third quarter results, Stora said, but would cut the estimated impairment charge of 1.3 billion euros it was going to book in the third quarter by about 800 million.
Operating results at Stora's North American operations were at a breakeven level, so the sale would not impact operating profit, but reduced EBITDA by 189 million euros, Stora said.
Stora Enso said it would receive $1.5 billion in cash, $200 million in vendor notes and a 19.9% stake in NewPage, valued at about $370 million, which it aims to sell. NewPage will also take over debt of about $450 million.
"It is positive for North American paper markets that there will be bigger players," Evli's Salonen said.
NewPage's proforma sales, including the acquired units were about $4.1 billion last year, it said, and added combining the operations was expected to generate about $265 million in annual cost savings.
The deal was expected to be finalized during the first quarter of 2008, Stora said, and added it would reduce its gearing, or debt to equity ratio, to 42% from 64%.