Producers want more M&A deals

       The paper industry needed more consolidation, the heads of Nordic papermakers UPM-Kymmene and M-real said yesterday, adding that they were ready to support a transformation of the sector.
       The global paper industry has struggled for close to a decade to climb out of a slump caused by overcapacity, soft demand, low prices and weak earnings,heightening the need to consolidate.
       But merger deals have been scarce throughout that period, and analysts said financing, valuation and competition issues would likely continue to constrain players' options.
       UPM-Kymmene's chief executive Jussi Pesonen said his firm aimed to be an active player in the consolidation of an industry struggling to slash costs and close excess capacity.
       "Definitely this industry needs to consolidate. Our role will be (that) of an active player," Pesonen, head of the world's third-largest firm in the sector by capacity, said at Reuters Paper and Packaging Summit.
       "There will be swaps or share deals.We most probably won't see any cash deals in this industry for the next year or two," Pesonen told the summit at Reuters News bureau in Helsinki.
       "We will participate only in those kinds of opportunities that create value for our shareholders and the company."
       The current global downturn has further knocked demand for paper, as print advertising has dived.
       "In the short term (the focus is on)restructuring, cost savings and balancing demand-supply," Pesonen said."This is a cost game. The lowest cost producer will always be better positioned."
       Finnish packaging and paper producer M-real, whose sale last year of its graphic papers business to South Africa's Sappi for 750 million was the biggest deal in years in the sector, said it also aimed to support further consolidation.
       "Our goal is to support consolidation of the European paper industry," M-real's chief executive Mikko Helander said at the summit.
       "No one can be satisfied with the European paper industry's financial performance. Part of the difficulty is the industrial structure."
       Helander said M-real was working hard on a strategic review that is seeking new solutions for its remaining uncoated fine paper and specialty paper units.
       He said that such deals could be divestments, mergers, joint ventures or other unspecified options.
       Helander said that M-real had taken big strides towards the structure that it wanted, with a heightened focus on packaging."We are moving in the right direction - the impact of paper has been reduced, the impact of packaging has increased."
       Packaging now accounts for about 40% of revenues.
       He said that in the future M-real would retain some papermaking but he said it remained to be seen how much paper production it would keep.
       Moody's analyst Christian Hendker said sector consolidation was possible,but constrained by a lack of debt financing available, difficulties in valuing assets in a falling market, and potential competition issues.