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| Domtar buys diaper company to escape paper volatility |
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http://www.sbdailynews.com
2011-08-16 |
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By Aftab Ahmed and Bhaswati Mukhopadhyay
BANGALORE (Reuters) - Domtar Corp (UFS.TO: Quote) (UFS.N: Quote) said it would buy privately held diaper maker Attends Healthcare Inc for $215 million in cash, as the Canadian paper maker eyes a new market with its first step outside the volatile paper and pulp industry.
The deal will help the company shield itself from the pressures of the paper industry that has struggled to emerge from a decade-long slump caused by soft demand and overcapacity, exacerbated by the 2009 recession.
The industry has been grappling with high input costs and weak prices. Although demand has returned, the recovery has been uneven.
"The company knows its main business is paper and there has been a secular decline. So it's repositioning its balance sheet," RBC Capital analyst Paul Quinn said.
China is growing in tissue and diaper related products. The rise of China's middle-classes has been driving demand for tissue and toilet paper -- there are tens of millions more babies' bottoms to wipe -- and driving growth for North American paper and pulp manufacturers.
Domtar recently said a decline in selling prices of pulp and costlier inputs is expected to offset gains from higher paper prices in the second half of the year, while it sees fluff pulp -- used mainly for diapers and other personal hygiene products to pick up.
The deal value includes a debt of about $100 million, but the company will pay off $73-$80 million of this with cash in hand when the transaction closes in the third quarter, according to Domtar's spokesman Pascal Bosse said.
The total transaction values Attends at 8 times its annual EBITDA of $39 million. Continued... |
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