IP+IP: Move will unite US, Russian giants

In a joint press release from Moscow, Russia, October 25, International Paper and Ilim Pulp, Russia’s largest forest products enterprise, announced they had signed a letter of intent to establish a 50:50 joint venture. It would be the largest foreign/domestic alliance in the Russian forest sector.

International Paper will buy a 50% equity interest in Ilim Holding. The total valuation of Ilim Holding in the joint venture is about $1.3 billion. The board of directors would include equal representation from both companies and the HQ would be in St. Petersburg.

Ilim Pulp operates four pulp and paper mills situated in the European and Siberian regions of Russia, and produces about 2.5 million tons per year of market pulp, uncoated papers and packaging. Ilim Holding is consolidating ownership of the individual mills into a single Russian open joint-stock company, Ilim Group, a subsidiary of Ilim Holding.

A long-term investment program will see some $1.2 billion invested in the four mills over about five years. Described as an “unprecedented investment in the Russian pulp and paper industry,” it would be used to upgrade equipment, increase capacity by about 1 million tons (40%) and develop highvalue products.

International Paper chairman and CEO John Faraci said the joint venture should benefit Russia “by significantly propelling the development of a globally competitive sustainable forest products industry in Russia.” International Paper already owns the Svetogorsk mill in the Leningrad region.

The Svetogorsk mill would remain separate as would Ilim Pulp’s wood-products enterprises, themselves to be com-bined to create Russia’s largest timberprocessing holding company.

Ilim Pulp chairman Zakhar Smushkin said the alliance “would align strategies that create unprecedented opportunities for both parties and for the entire Russian forest-products industry.” It would provide Russia “a competitive edge over other emerging markets in attracting needed capital to the industry.”

Frank Graves, a former pulp salesman for Tembec Inc., is Ilim Pulp’s executive vice-president. He joined in 2002 as COO.

The agreement should be finalized in 1Q07 pending due diligence, and regulatory and board approvals.

International Paper is 100 years old. It is transforming its operations to focus on its global uncoated papers and packaging businesses, which operate and serve customers in the U.S., Europe, South America, Asia, Russia and North Africa.

Ilim Pulp, Saint Petersburg, Russia, incorporated in 1992, claims to be among the world’s top 10 companies in output of market pulp. It ranks sixth internationally in timber reserves and logging volumes. Ilim’s core activities are solid wood products, pulp and containerboard, and packaging. Ilim Pulp employs a total of 42,000 people and produces 60% of market pulp and 50% of boxboard manufactured in Russia.

Ilim Pulp was the target of a take-over attempt in 2002. www.internationalpaper.com  www.papermills.ru

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