Meadwestvaco continues on Forest Exit Strategy

Implications: The sale of the MWV mill at North Charleston. SC, will have ramifications for both parties.  MWV will shed the pulp and paper mill, but also a lumber mill, and 4 chip mills, which were part of the integrated procurement strategy for this mill.  Up until the merger with Mead, this facility was wooded chiefly from company owned timberlands, purchased many years at a much lower price than current rates.  MWV and Kapstone have announced a timber supply agreement that allows MWV to continue to supply this mill; albeit at higher stumpage rates. On the mill footprint issue, the mill is located between 6-10 miles from the Ocean, and downtown Charleston - one of the most historic cities in the US.  Will there be state or local initiatives to reduce odor and dust issues generated by sale of the mill?

Analysis: Timber supply agreements (TSA) normallly are not treated as public information.  The announced price of the sale of the mill was $485MM.  This price almost certainly contains the net effect of the stumpage rates in the TSA, and some kind of PPI based annual re-calculation.  Kaptone will cetainly have higher fiber costs than the previous owner.  MWV still owns a sizeable acreage in addition to the Edisto River Plan (72,000 acres).  MWV will be able to draw down these acres and still meet a resonable harvest level - for a period of several years, and one must speculate the length of the TSA is in sync with the timberland drawdown goals