A new "super pulp producer" emerges!

Implications: This merger effectively produces a major consolidation in the Brazilian BEKP market pulp industry which has long been talked about as being beneficial.  Having so much capacity in the hands of one super-producer certainly would seem to lessen chances of rogue discounting during a down cycle. VCP estimates a savings/year of US$500 million through savings in administration, logistic, wood purchases and sales/marketing.  Logic would seem to indicate that at least half this amount is doable but whether the whole $500 million is ever realized remains to be seen. Having a producer with this much capacity as well as ambitious plans for future new greenfield mills should be encouraging to major customers like P&G, KC, SCA, GP etc. who are building new tissue and towelling capacity and are assuming adequate supplies will be available.

Analysis: Ara Cruz and VCP have entered into an agreement whereby the assets and obligations of both companies will be merged into one entity.  This represents a major step in the corporate restructuring of VCP and AraCruz.  The merger will result in the creation of a Holding company that combines all the assets and obligations of VCP and Aracruz with two major owners - VID and Arainvest maintaining complete control.
With the conclusion of legal transactions the merger is expected to occur by October 8, 2008.
Arainvest will have paid approximately Rais $530 million to VID pursuant to the terms agreed upon between them.
Customers and competitors alike are watching to see how this will effect each companies plans to each build several new greenfield mills for start up 2012-2015.  These mills would be of a grand scale - 4000 mt/day, 1.3 million mt/year costing over US$1.5 billion.