Hokuetsu, Nippon Paper ally; synergy valued at 8.5 billion yen

Hokuetsu Paper Mills Ltd. said Tuesday it has reached a basic agreement to conclude an operational alliance with Nippon Paper Industries Co.

Hokuetsu and Nippon Paper Industries, a wholly owned subsidiary of Nippon Paper Group Inc., plan to mutually supply products under each other's brands, jointly procure materials and fuel and streamline distribution systems.

The two companies expect to achieve synergies worth an annual 8.5 billion yen, more than the 7.5 billion yen Oji Paper Co. had said would result from Hokuetsu's management integration with the nation's top papermaker.

Nippon Paper Group, the holding company, acquired an 8.9-percent stake in Hokuetsu in August in an attempt to block Oji's hostile takeover bid for Hokuetsu.

Hokuetsu and Nippon Paper Industries are scheduled to formalize an agreement by the end of November.

The companies said the mutual supply of products under original equipment manufacturing agreements will improve the capacity utilization rates of their state-of-the-art production facilities.

Hokuetsu plans to increase capacity at its plant in Niigata Prefecture and Nippon Paper at its plant in Miyagi Prefecture. The two companies plan to supply OEM products for sales in areas near the plants.

Hokuetsu and Nippon Paper also plan to consider a three-way partnership involving Mitsubishi Corp., Hokuetsu's top shareholder with a 24.4-percent stake.

The trading house has a separate business alliance with Hokuetsu, the nation's fifth-largest papermaker.

Nippon Paper Group is Hokuetsu's second-largest shareholder.

Nippon Paper Group President Masatomo Nakamura said the nation's second-largest papermaker expects earnings to justify the 15-billion-yen equity investment in Hokuetsu.

Hokuetsu President Masaaki Miwa said Hokuetsu, Nippon Paper Group and Mitsubishi Corp. intend to enhance the corporate value of each company through the two separate alliances.

Miwa and Nakamura met reporters after signing a memorandum of understanding on the alliance.

In an interview with The Asahi Shimbun on Monday, Miwa indicated that it may tie up with Mitsubishi Paper Mills Ltd., an affiliate of Mitsubishi Corp., depending on discussions with the trading house.(IHT/Asahi: September 12,2006)