US paper company Bowater Inc will merge with Canadian peer Abitibi-Consolidated Inc, creating North America's largest newsprint maker in a bid to revive the struggling business, the companies said on Monday.
The combined company, which will be called AbitibiBowater Inc, will be the third-largest North American paper company and eighth-largest in the world, they said. It will have annual revenue of about $7.9 billion.
Investors welcomed the move, sending Bowater's shares rallying 30 percent to $28.71 apiece on the New York Stock Exchange and Abitibi shares rose more than 25 percent in Toronto. The newsprint market has been hurt by falling circulation numbers and tepid ad sales at North American newspapers. Some big newspapers have also reduced their size.
"This is a logical strategic step to address the realities of today's marketplace," Bowater Chief Executive David Paterson said in a statement. The link-up, which is expected to be completed later this year, would create a company holding about 45 percent of the newsprint production capacity in the United States, but about 30 percent of the sales.
"Both Abitibi-Consolidated and Bowater shareholders will benefit from the upside potential of a financially stronger company that is able to generate significant cost synergies, improve its balance sheet and compete more effectively," he said.
Under the terms of the agreement, Bowater shareholders will own about 52 percent of the new company and Abitibi shareholders will own the remaining 48 percent.
They said each common share of Abitibi-Consolidated will be exchanged for 0.06261 common share of AbitibiBowater, and each Bowater common share will be exchanged for 0.52 common share of AbitibiBowater.
The companies expect to see about $250 million of cost savings annually through the merger, which will come in addition to cost savings initiatives already under way at both companies.