Stone Container, Smurfit To Merge p.29

By: Jim Rosenberg Combined '97 paper product sales were $8 billion

STONE CONTAINER CORP., Chicago, and Jefferson Smurfit Corp., the Clayton, Mo., company ? 46.5% owned by Ireland's Jefferson Smurfit Group PLC ? agreed to merge in a tax-free exchange of stock, creating Smurfit-Stone Container Corp.

$2 billion transaction
The transaction is valued at more than $2 billion. The firms' combined 1997 sales exceeded $8 billion.
The deal will join Stone's big unbleached paper and packaging business with the paper, paperboard and packaging production of Smurfit, a major collector, marketer and exporter of recovered fiber, including that used in its own recycled newsprint.
The combination would produce the world's largest maker of paperboard and packaging.
The agreement calls for a Jefferson Smurfit Group subsidiary to buy 20 million Jefferson Smurfit Corp. shares from certain investors, giving it approximately 34% of Smurfit-Stone. Remaining ownership will be held by a Morgan Stanley Dean Witter & Co. fund (9%) and by publicly traded shares (57%). The share purchase is subject to completion of the merger and regulatory approval.

Headquarters in Chicago
Smurfit Corp. chairman Michael W.J. Smurfit is to become nonexecutive chairman of Smurfit-Stone; Stone chairman and CEO Roger W. Stone is to become Smurfit-Stone president and CEO. The new company will be headquartered in Chicago. It is expected to generate more than $350 million in annual savings, exclusive of as-yet unspecified divestitures of noncore businesses.
Newsprint was not among the products mentioned in the the companies' announcement of their pending merger. In 1997, Stone sold to Abitibi-Price almost half its 47% interest in a Canadian newsprint manufacturing subsidiary formed from the acquisitions of Consolidated Bathurst and Rainy River Forest Products.

Divestiture discussions
Prior to merger negotiations, the company looked to pay down debt (incurred largely as a result of its 1989 purchase of Consolidated Bathurst) with proceeds from divestiture of its remaining newsprint interest.
Smurfit produces newsprint in Oregon using its own recovered paper, and the larger company would be able to consume some of the over-60% of Smurfit's recycled fiber that it now sells to other companies.
Standard & Poor's said the proposed transaction would not add to the merged company's debt, which it put as $6.7 billion, and the company's list as $6.4 billion.
Proceeds from divestitures totaling $2.5 billion are to be applied to the debt.
A Smurfit spokesman said "the newsprint operations for both [Smurfit and Stone] could be considered as divestiture candidates" and that they will be subject to closer examination before completion of the merger.
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