A privately held pulp and paper maker managed by a member of an Indonesian enterprise dynasty is tightening its grip on Canada’s forest sector with a flurry of takeovers, prompting environmental teams to boost considerations in regards to the firm’s affect and accountability.
Paper Excellence Group is owned by Jackson Widjaja, of the billionaire Widjaja household, and headquartered in Richmond, B.C. The corporate launched with a single pulp mill in Saskatchewan 15 years in the past and slowly expanded by means of smaller acquisitions – till late 2019, when it closed the acquisition of B.C.’s Catalyst Paper Corp. and its three mills.
Since then, its urge for food has been ravenous. The corporate swallowed Montreal-based Domtar Corp. for US$2.8-billion in November final yr. Simply months later, it took the business abruptly with the proposed takeover of Resolute Forest Merchandise Inc. RFP-T for US$2.7-billion. That deal remains to be being examined by the Competitors Bureau after Resolute shareholders gave their approval.
If the sale goes by means of, it will cap an unprecedented, rapid-fire enlargement for a forestry merchandise firm working in Canada – one which’s producing blended emotions throughout the nation. Many business consultants and analysts give Paper Excellence credit score for investing in property nobody else needed and protecting issues operating in mills that rival producers may need given up on years in the past. Others are sounding the alarm.
Konrad Yakabuski: With Resolute deal, Canada’s forest sector reveals it may nonetheless appeal to buyers – simply not sufficient home ones
With Domtar, Paper Excellence is already the largest producer of pulp and paper in Canada, holding 12 per cent of the business’s 20.7 million tonnes of annual capability, in keeping with the newest knowledge from market analysis group Fisher Worldwide. Pulp is used to make issues like packaging, rest room paper and diapers. Taking up Resolute, the No. 2 participant, would push that share as much as 21 per cent, not together with any divestitures, Fisher knowledge present.
Resolute is the largest producer of newsprint and uncoated mechanical paper in North America, the sort used for magazines and promoting catalogues. It additionally makes tissue and has main lumber property. Domtar is greatest in uncoated free sheet paper on the continent, the sort utilized in workplace paper.
“That is enormous,” stated Kevin Mason, managing director of ERA Forest Merchandise Analysis.
“You are taking Paper Excellence with their current pulp property and layer that with the Resolute and Domtar stuff and yeah, they’re a brand new large,” Mr. Mason stated. “Lots of people within the business are not sure the way it’s going to deal in its new place. That creates uncertainty undoubtedly if you’re not too positive what the brand new proprietor goes to do and the way they’re going to behave.”
Conservation non-profit Cover Planet says it’s perilous to present one firm that a lot energy in an business so vital to the combat in opposition to local weather change, particularly one it says has a spotty observe report. Greenpeace wonders simply how deep the corporate’s hyperlinks to the Widjaja household’s different holdings run, particularly conglomerate Sinar Mas and its subsidiary Asia Pulp and Paper (APP).
Greenpeace characterizes APP as a poster boy for dangerous behaviour, saying it cleared two million hectares of rainforest in Indonesia that destroyed vital habitat for orangutans, tigers and elephants. It additionally says its land-use practices have been linked to catastrophic fires in 2015 and once more in 2019, and that it has engaged in conflicts with greater than 100 native communities in Sumatra.
Paper Excellence says that, aside from the very fact its proprietor is a member of the Widjaja household, there isn’t any relationship with Sinar Mas or APP. And though it will turn into Canada’s greatest pulp and paper firm with the Resolute takeover, it rejects strategies it will dominate anybody market phase.
“We’re not a behemoth,” stated Patrick Loulou, the corporate’s vice-chairman and chief technique officer. “We’re actually a diversified forestry pulp and paper firm. And that’s been the technique.”
Offers corresponding to these for Catalyst, Domtar and Resolute exhibit that the Canadian forest merchandise business and the softwood it’s recognized for stay a beautiful goal for well-capitalized buyers. The sector’s output nonetheless ranks among the many nation’s top-five exports. However the offers additionally lay naked the pitfalls of so many property being held by so few.
After years of consolidation and bankruptcies that claimed iconic names corresponding to Abitibi-Worth and MacMillan Bloedel, a sector that was as soon as a pillar of the Canadian economic system now seems to be heading towards a remaining shakeout wherein the remaining gamers have an outsized presence. In one other instance of current consolidation, West Fraser Timber Co. Ltd. final yr accomplished a $4-billion takeover of Norbord Inc., which produces oriented strand board utilized in building.
Contemplate the numbers. Paper Excellence presently controls pulp and paper manufacturing operations that yield nearly 10.4 million tonnes yearly, with a piece power of greater than 14,000 at some 40 areas throughout the Americas and Europe. In Canada, it has 10 mills, together with these of Domtar, and it’s largely a pulp and paper firm.
Including Resolute would add sawmills and woodland property to the combo. If that deal is accomplished as anticipated within the first half of subsequent yr, Paper Excellence would achieve one other two dozen operations in Canada, together with extra pulp and paper mills, a number of services the place construction-grade lumber and different wooden merchandise are made, in addition to a clutch of power-generation services. Resolute manages greater than 20 million hectares of forests, most of them in Ontario and Quebec.
Critics say that ought to give each regulators and governments pause. Paper Excellence additionally owns two pulp services in France and is within the means of buying the Eldorado Brasil Celulose pulp mill in Brazil, one of many nation’s greatest. The corporate has introduced its intention to promote Resolute’s Thunder Bay mill to win approval for the deal, and Domtar’s Dryden and Espanola operations in Ontario can even be divested.
“To have a lot of Canada’s forests concentrated below the decision-making affect of only one firm is simply fraught with potential hazard,” stated Nicole Rycroft, the pinnacle of Cover Planet.
Ms. Rycroft says that, whereas the federal authorities and the Competitors Bureau are flagging considerations about Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. and China’s dominance of the marketplace for vital minerals, Paper Excellence’s bid to manage extra of Canada’s forests additionally warrants severe scrutiny. She says the corporate’s possession construction has turn into much less clear through the years, which provides to the necessity to shed extra mild on who’s pulling the strings and who’s accountable for the corporate’s actions.
Jackson Widjaja, who lives in Asia, began investing in Canada greater than a decade in the past as a method to entry its wooden fibre provide. He needed to feed a flourishing marketplace for pulp and paper in Asia, in keeping with forestry advisor Peter Woodbridge, who as soon as suggested the corporate.
Mr. Loulou describes Mr. Widjaja as a deeply personal man with a long-term imaginative and prescient – a pacesetter with an eye fixed for seeing promise the place others see failure. “When you’re an enormous firm with [multiple mills] and you’ve got a little bit of a wounded duck on the aspect there, you don’t actually spend money on it. You simply let it fail,” Mr. Loulou stated. Mr. Widjaja has a unique method. “He simply goes, ‘No, wait a minute. When you do A, B and C, we might really prolong the life one other 5 years, one other 10 years.’ And in order that’s what he’s executed.”
Questions on Paper Excellence’s possession and intentions in Canada have come up nearly from the second it appeared on individuals’s radar. Information tales in The Globe and Mail and elsewhere have reported that APP really bought Paper Excellence’s Meadow Lake mill, its first asset in Canada.
When Paper Excellence was bidding for a paper mill in Port Hawkesbury, N.S., in 2011, APP Canada acknowledged in a Globe report that it was affiliated with Paper Excellence however insisted the operations had been impartial. On the time, Ms. Rycroft stated she was involved the businesses had been utilizing Canada to rehabilitate the general public picture of APP and Sinar Mas, which she stated have a “horrendous observe report” of their house market.
In a analysis paper on Paper Excellence’s possession printed in October, Greenpeace, the Environmental Paper Community and two different teams current a physique of proof that features household ties, overlapping administration and lobbyist filings indicating that Sinar Mas Group controls Paper Excellence and that Paper Excellence and APP may be thought-about sister corporations.
The teams say Paper Excellence’s company construction is an intensive community of entities registered in offshore jurisdictions characterised by excessive ranges of company secrecy. In the meantime, property titles for the Catalyst mills that Paper Excellence purchased in 2019 present the mortgagee is Financial institution Negara Indonesia, a state-owned financial institution, in keeping with Greenpeace, including that two APP mills additionally held debt from the identical lender on the finish of 2021.
“The problem right here is that this firm has some opaque possession,” stated Priyanka Vittal, a Greenpeace lawyer. “That’s a priority as a result of it raises the query of what their practices are going to be. … Are they going to be a part of the answer towards defending biodiversity and wildlife and species in danger? Or are they going to be a part of the issue?”
There’s no thriller, Mr. Loulou stated. Mr. Widjaja is the proprietor of Paper Excellence and there aren’t any hyperlinks between it and Sinar Mas and APP. “We don’t collaborate. We don’t do something. They’re full strangers, so far as I’m involved.” As for Paper Excellence’s company construction, he stated: “I don’t see it as being out of the extraordinary.”
When Canada’s Competitors Bureau accepted its takeover of Domtar in December, 2021, the regulator concluded that the deal would doubtless reduce competitors within the buy of wooden fibre in B.C.’s Southern Inside and coastal areas, so it demanded that Paper Excellence promote its pulp mill in Kamloops. The bureau additionally analyzed the aggressive results on the sale of pulp and paper, and concluded that the 2 corporations weren’t notably shut opponents and that rivals might serve varied areas.
In deciding whether or not Paper Excellence would achieve extreme management of the pulp and paper market with its buy of Domtar, the bureau stated it additionally “extensively thought-about” a attainable relationship between Paper Excellence and APP, a serious producer of pulp and paper and one of many greatest shoppers of northern bleached softwood kraft pulp on the planet.
The regulator concluded: “Whereas a variety of market members alleged that Paper Excellence’s relationship with APP would incentivize it to behave in an anti-competitive method, even when such actions wouldn’t be worthwhile for a totally impartial entity, the bureau decided that there’s inadequate proof to conclude that the proposed transaction would doubtless considerably reduce or stop competitors within the sale of pulp and/or paper in Canada, even below a situation the place a major curiosity is discovered to exist.”
There are recent competitors worries with the Resolute transaction, notably in newsprint, the place Resolute is North America’s greatest provider. Paper Excellence is alleged to be in search of worth will increase of as a lot as 30 per cent from clients corresponding to business printer Transcontinental Inc. as a result of it may command such costs in abroad markets.
That’s forcing printers to scramble for options and will even steer newspapers into monetary problem in the event that they’re pressured to pay the steep worth hikes. Officers with Montreal-based Transcontinental declined to remark.
Paper Excellence will keep dedicated to supplying the Canadian market with newsprint for so long as there are consumers, Mr. Loulou stated. He acknowledged that newsprint costs are greater however stated white paper costs have climbed as nicely – a operate of upper enter prices for power, transportation and chemical compounds. “It’s not like we’re in some way pocketing all of that with simply larger earnings,” he stated. “Our prices maintain rising, and so we’re simply adjusting with the remainder of the market.”
Frank Dottori, the founding father of Tembec Inc. and a famend determine within the business, says he sees Paper Excellence because the Canadian arm of APP. He stated the insistence that the 2 are completely separate is simply “good politics” and “strategic as a result of persons are frightened in regards to the elephant within the room.”
“I believe they’ve been fairly strong buyers” in Canada, Mr. Dottori stated of each corporations. “So I believe it’s not dangerous for the Canadian business and Canadian staff. However , individuals say cash has no nationality. And that’s not true.”
One large danger is that the Canadian services will rank decrease than these exterior the nation on Paper Excellence’s listing of operations with regards to weighing closures, Mr. Dottori stated. “That’s what Canadians ought to fear about,” he stated. “You turn into … the finger on the hand. So in the event that they must amputate, it’s simpler to do.”
When Paper Excellence purchased the three mill websites from struggling Catalyst in 2019, B.C. premier John Horgan hailed the corporate for stepping up with funding when pensions and jobs had been in danger. Two years later, operations at a type of mills, Crofton, have been scaled again. One other, Powell River, has closed completely. Paper Excellence’s Northern Pulp mill in Nova Scotia filed for chapter safety in 2020, and the corporate sued the province for $450-million in damages in a dispute over the mill’s effluent remedy facility.
Whether or not different corporations would have acted any otherwise is anybody’s guess.
Don Roberts is the chief govt of Nawitka Capital Advisors, an funding banking boutique and strategic advisory agency that serves organizations within the forest merchandise, renewable power and clear know-how industries. He says that even when Paper Excellence is basically a international firm, the vital factor is that it has the monetary means and can to spend money on Canada.
Mr. Roberts says that if we take into consideration the place the Canadian forest business must be in 10 years and which gamers are prone to get us there, it’s not clear that Paper Excellence’s enlargement is detrimental to that effort. The sector must push into renewable fuels, chemical compounds and superior strong supplies to be used in building and different areas, he says, and corporations corresponding to Paper Excellence might drive that push. They’ve already recruited individuals with this focus.
What you need is a robust firm with a strong stability sheet and the desire to develop, he says. “The forest sector as we’re seeing it now could be present process a elementary transformation. And so the query isn’t just do you’ve gotten the cash to do it. It’s do you’ve gotten the mindset to do it.”