Home News Industry News Mercer International Inc. to Acquire Daishowa-Marubeni International Ltd. ("Dmi")Significantly Expanding its Pulp Operations

Mercer International Inc. to Acquire Daishowa-Marubeni International Ltd. ("Dmi")Significantly Expanding its Pulp Operations

DMI owns and operates a swing NBSK and NBHK pulp mill in Peace River, Alberta, and has a 50% interest in a NBSK pulp mill in Quesnel, British Columbia.

  • Consideration of $359.2 million (C$465 million), which includes minimum working capital of $85.7 million (C$111 million)
  • Pulp mills to be acquired have a combined pulp production capacity of 645,000 ADMTs, which is comprised of the Peace River pulp mill with 475,000 ADMTs and 50% of the Quesnel pulp mill, with 170,000 ADMTs
  • Post-acquisition, Mercer will have a combined annual production capacity of approximately 2.2 million ADMTs of pulp and approximately 890,000 MWh of surplus energy
  • For the first eight months of 2018, DMI had combined1 Revenues of approximately $320.3 million, Net Income of approximately $42.2 million, and EBITDA of approximately $90.7 million
  • For the fiscal year 2017, DMI had Revenues of approximately $351.6 million, Net Income of approximately $8.2 million, and EBITDA of approximately $55.3 million
  • Immediately accretive transaction which advances the Company's long term strategy of growing its business in pulp, lumber, energy and extractives

NEW YORK, NY, October 3, 2018 - Mercer International Inc. (Nasdaq: MERC) today announced that it has entered into an agreement with Marubeni Corporation, Nippon Paper Industries Co., Ltd., and Daishowa North America Corporation to acquire all of the issued and outstanding shares of DMI for consideration of $359.2 million (C$465 million), which includes minimum working capital of $85.7 million (C$111 million).

DMI owns 100% of a bleached kraft pulp mill in Peace River, Alberta (the "PRP Mill") and has a 50% interest in the Cariboo Pulp and Paper Company ("CPP"), a joint venture which operates a bleached kraft pulp mill in Quesnel, British Columbia (the "CPP Mill").

As a result of this transaction, Mercer's annual production capacity for pulp will increase by approximately 41% to 2.2 million ADMTs, and surplus energy will increase by approximately 8% to 890,000 MWhs.

Further, the acquisition of DMI will add NBHK pulp to Mercer's current product mix as well as provide the Company with an expanded market presence in Asia.

DMI also holds 20-year term renewable governmental Forest Management Agreements and Deciduous Timber Allocations in Alberta with an Annual Allowable Cut ("AAC") of approximately 2.4 million cubic meters of hardwood and 400,000 cubic meters of softwood.

The transaction is subject to customary closing conditions, including receipt of requisite regulatory antitrust approvals. In connection therewith, Mercer has arranged a fully committed financing in the amount of US$350 million to finance the acquisition. The transaction is expected to close in the fourth quarter of 2018.

Sangra Moller LLP acted as legal advisor for Mercer and Credit Suisse provided the committed financing for the transaction.

Mill Highlights
PRP Mill:

  • is a modern, high performance swing mill with an annual production capacity of approximately 475,000 ADMT of bleached hardwood and softwood kraft pulp;
  • holds Provincial Forest Management Agreements ("FMA") and Deciduous Timber Allocations ("DTA") in Alberta with 20-year terms which provide it with an ACC for hardwood of approximately 2.4 million cubic meters from province-owned forests through the FMAs and DTAs, and has rights to harvest 400,000 cubic meters of softwood through the FMAs;
  • includes a bio-mass fueled cogeneration power plant, comprised of two turbines: a back pressure turbine with a capacity of 40 MW which generates power for the PRP Mill's pulp production, and a condensing turbine generator with a capacity of 25 MW, which is used to generate electricity for sale to the Alberta electrical grid; and
  • has an experienced workforce of approximately 280 employees.

CPP Mill:

  • is a joint venture in which DMI has a 50% interest;
  • has an annual production capacity of approximately 340,000 ADMT of NBSK pulp;
  • includes a bio-mass fueled cogeneration power plant, comprised of two turbines: a back pressure turbine with a capacity of 32 MW which generates power for the CPP Mill's pulp production, and a condensing turbine generator with a capacity of 25 MW, which is used to generate electricity for sale to the BC utility; and
  • has an experienced workforce of approximately 305 employees.

Operating Synergies

We believe the acquisition of DMI and the integration of the acquired mills with Mercer's existing operations will generate material operating synergies in the range of approximately $15 to $20 million per year, primarily through procurement opportunities, cost benefits, optimization of logistics and geographic market mix through an expanded number of mill locations. We currently expect to achieve the majority of such synergies within 12 months of closing of the transaction.

CEO Comments

Mr. David M. Gandossi, Chief Executive Officer, stated: "The proposed acquisition significantly increases our current operations in Canada and, in particular, will complement Mercer's Celgar pulp mill in British Columbia. The acquisition will additionally strengthen our presence in Asia, which we have identified as an important strategic area, and it will expand our product offering to include northern bleached hardwood kraft pulp, a product that we believe is following the same tightening market path that NBSK has experienced during the past few years."

Mr. Gandossi continued: "This is a highly strategic transaction for Mercer that leverages our core competencies and is in line with our long-term growth strategies. The transaction positions us to capitalize on identified synergies with Mercer's existing operations and to create a platform for immediate cash flow generation and earnings accretion. It is an important step in our long term value-add strategy of growing our company in pulp, lumber, energy and extractives," Mr. Gandossi concluded: "Both the PRP and CPP mills currently have solid operating platforms in place, which can be further enhanced through improved efficiencies and capital improvements. We are delighted to welcome the employees of DMI to the Mercer team and, consistent with all our operations, we look forward to working with our new government, community and first nations partners in alignment with our core values of health and safety, sustainability, integrity, innovation and performance excellence,"

Selected Historical Financial Information and Operating Highlights

Based upon its historical financial information in 2017 and the eight months of 2018, DMI had (in millions):


-------------------------------------
(1) DMI financial results are prepared in accordance with IFRS, are in Canadian dollars and eight-month results are on a combined

basis.
(2) Canadian dollars converted to U.S. dollars at a rate of 1.2986, being the annual average rate on December 29, 2017.
(3) Canadian dollars converted to U.S. dollars at a rate of 1.2858, being the year to date average rate on August 31, 2018.
(4) Includes business interruption insurance proceeds of $15.7 million and $7.0 million in 2017 and 8 Months 2018, respectively.
(5) See "Non-GAAP Financial Measures" below.

Mercer International Inc. is a global wood products manufacturing company. To obtain further information on the company, please visit its web site at http://www.mercerint.com.

Non-GAAP Financial Measures

This press release contains references to EBITDA, which is a non-GAAP metric. EBITDA is defined as operating income plus depreciation and amortization. We believe certain investors and financial analysts use EBITDA to evaluate financial performance. EBITDA is also included to help facilitate comparisons of the historic operating performance of the assets to be acquired with other companies in our industry. EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative to operating income or any other measure of financial performance presented in accordance with GAAP.

EBITDA excludes some, but not all, items that affect operating income. The following table sets forth a reconciliation of DMI's net income to EBITDA for the fiscal year 2017 and the first eight months of 2018 (in millions):


 -------------------------------------
(1) Reported pursuant to IFRS and 8-month results reported on a combined basis.

(2) Pursuant to IFRS which provides for the capitalization of certain maintenance costs which are expensed pursuant to U.S. GAAP.

Source: Mercer International

 
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