Will the Abitibi-Bowater merger process drive more profit to the bottom line?

Implications: The BOW-ATB merger was completed on Oct 29th, 2007, and the DOJ is mandating the sale of the Abitibi newsprint mill located at Snowflake, AZ, which ironically, is one of the best newsprint mill in the US.   The really difficult decisions are production curtailment or reallocation of tonnage among and within the mills.  The Calhoun TN mill is a good example, with 5 paper lines, two different types of pulp mills, and even a cogeneration plant.  This mill is most likely optimized for local conditions.  Having said that, a product may or may not be the best combination for the new corporation?  Should the news print be moved to another facility?  Calhoun uses virgin fiber as well as recycled for newsprint, If virgin is favored - what would be the effects on the cogen plant or recovery boiler? With 32 sperate paper mills, most with multiple fiber lines, the options are enormous.  ABH also leases over 53 MM acres of Crown lands in Canada, some of which may be sub optimal for ABH.

Analysis:  ABH has announced a two phase study lasting about 4 months that will work on these very issues.  Projected synergies are $375 MM for phase one.  Specific Issues include
 
Most pulp mills run to the limits of the chemical recovery boiler – this is where energy is created by burning various pulping byproducts.  Adding capacity to the recovery boilers is extremely expensive and also driven by permitting.  Having too much power is one issue but the flipside of that is having not enough power and these mills require huge amounts of electricity to run. 

In some states,  the permit for the pulp mill itself may be reopened upon changes in capacity, he and his can take quite a while to complete.  

At this point, the product and mill matching must occur, this is were the largest incentives are. 

So, to get the best “merger synergy” for the New Corporation – it has been my experience to treat each fiber line as a separate option, then try and match the fiber – pulp mill – paper system to the best platform, without losing track of the energy balance or the required permitting (if applicable)

The Crown Lease timberlands should be examined for reallocation, termination, or renegotiation

Having been through this process twice, It has been experience that ABH will need to continue it's synergy targets, and attack each issue without prejudice. Lack of speed and focuss can really reduce productivity.

You don't get many "Do Overs" of this magnitude.