(Reuters) – Norwegian papermaker Norske Skog
repeated its calls for more consolidation to combat overcapacity in Europe and said the cash-poor sector was likely to favor deals such as asset swaps.
“You will probably see some kind of a poor man’s M&A solution — (for instance) joint ventures, asset swapping,” Ombudstvedt said. “I don’t think that you will see many straight acquisitions,” Norske Skog Chief Executive Sven Ombudstvedt told journalists on Monday.
The global paper industry has been mired in a slump caused by soft demand and overcapacity, exacerbated by the global recession. Norske Skog’s newsprint business has additionally been hammered by a slump advertising spending and subscriptions.
“One reason to have consolidation is to foster a more healthy supply-demand balance,” the CEO said.
Europe is still much more fragmented than North America, were several companies have been through debt restructuring. In Europe, many players “wouldn’t take the pain” of closing down old paper mills, Ombudstvedt said.
“People are beating each other to death within the same segment … so consolidation will foster a clearer leadership within the paper grades,” he said.
The global financial crisis compounded years of struggle by Norske Skog and much of the paper industry with soft demand and overproduction so companies do not have a lot of cash for deals.
Ombudstvedt said Norske Skog’s ability to acquire others was for the most part limited by its own balance sheet, as credit for making deals was probably still available despite markets risk premiums having surged with recent European debt woes.
Norske Skog is currently talking to its creditors about its maturity profile, which calls for big repayments in 2012. It’s also looking to divest up to 1 billion crowns ($150.5 million) worth of non-core assets to reduce the debt load.
Ombudtsvedt said the timing was not right for a complete debt restructuring.
“You probably pay twice the funding cost we have on the debt today … it wouldn’t really be prudent management,” he said.
Instead, Norske Skog has put up for sale the real estate for its old Union paper mill in Norway, some other property and forest land, as well as surplus electricity contracts in Norway, Brazil and New Zealand, he said.
($1=6.644 Norwegian Crown)
(Editing by Jon Loades-Carter)