Japanese $700m buyout puts Tasmania paper mills at risk

Nippon Paper’s takeover of PaperlinX manufacturing company, Australian Paper, excludes Wesley Vale and Burnie mills.

The Tasmanian mills face an uncertain future as the rest of the Australian Paper, including Maryvale and Shoalhaven mills, is sold. The deal sees ownership of Australian iconic brand Reflex copy paper, pass to the $12 billion Japanese giant.

The long-anticipated sale requires a write down of $600 million for troubled PaperlinX, the largest paper merchanting group in the world. Apart from dealing with the two Tasmanian mills, the move frees the company to concentrate on its $6.5 billion of annual paper merchanting business while using most of the proceeds to pay down debt.

PaperlinX will conduct a detailed review of the operations of the two remaining mills over the next few months. In a statement it flags potential outcomes as retention of the existing business model, partial closure, closure or sale. The latter is highly unlikely in the face of Nippon Paper’s refusal.

The two mills have a legacy of chemical manufacturing and under investment that will make their closure and restoration (cleaning up the environmental impact) an expensive business. Although making a loss last year, PaperlinX reports improving earnings and competitive positions, mostly due to currency movements. As part of the deal the Tasmanians have secured a supply of bleached eucalypt pulp at cost price from the new Maryvale pulp upgrade.

One industry source has described the mills as the equivalent of General Motors v8 motorcars, suitable only for a museum. The old paper machines are too narrow to supply material for the new wide format, high-speed web presses.

The Nippon Paper takeover is part of a strategy by the Japanese company to become one of the top five paper producers in the world. It gives it a strategic base in Australia at an advantageous price without having to invest more following the difficult $300 million upgrade to Maryvale last year.

Financial commentators regard the deal as a rock-bottom sale price, especially with regard to the strength of the Yen and carrying value of Australian Paper on PaperlinX’ s books.

PaperlinX merchants will remain exclusive distributors for a number of Australian Paper products in Australia and New Zealand. The businesses transferred to Nippon Paper include PaperlinX Office, PaperlinX Printing and Publishing Paper (4P), Dalton Web and PPM.