Incorporated: 1912 as Abitibi Pulp & Paper Co. Limited
Sales: C $4.16 billion (1997)
Stock Exchanges: New York Toronto Montreal
Ticker Symbols: ABY; A
SICs: 5111 Printing & Writing Paper; 5113 Industrial & Personal Service Paper; 2621 Paper Mills; 2671 Packaging Paper & Plastics Film, Coated & Laminated; 0811 Timber Tracts
Abitibi-Consolidated, Inc. is the world’s largest newsprint and uncoated groundwood producer. It was formed in May 1997 by a merger of Abitibi-Price, Inc. and Stone-Consolidated Corporation. The two companies, which had been competitors, expected to achieve savings of $100 to $200 million annually just by eliminating duplications in the selling and administrative areas. Abitibi-Consolidated began operations with a total of 18 paper mills: 14 in Canada, three in the United States, and one in Great Britain, plus seven wholly owned or affiliated sawmills in Canada. The combined company had a market capitalization of C $4.1 billion, and annualized sales for 1997 were C $4.16 billion.
Along with much of the Canadian paper industry, Abitibi-Price owed its existence to the bitter squabbling that developed in the latter part of the 19th century between U.S. manufacturers and consumers of newsprint. Ever since the newspaper industry had converted from rag-based paper to paper made from the pulp of trees in the 1870s, it had been troubled by recurring overcapacity and disastrous price wars. These were usually followed by attempts to moderate competition through mergers and combinations. The most ambitious of these consolidations was the creation in the 1890s of International Paper Company from the assets of 19 U.S. paper concerns. In the first decade of the 20th century International Paper controlled nearly 75 percent of the U.S. newsprint market, a situation that elicited charges of monopoly and price gouging from the publishers of newspapers.
Newspaper publishers were able to publicize their accusations, sometimes coupling them with warnings about the need to protect freedom of the press from coercive economic forces. They eventually convinced the U.S. Congress to remove a long-standing tariff on imported paper products. The lifting of the tariff in 1913 prompted a rush to build plants in Canada, where abundant forests and water power made it a natural site for pulp and paper manufacturing. In the year 1911 alone, some 81 new forestry companies were created in Canada in anticipation of the lifting of the tariff. It was in the midst of this stampede that Abitibi Pulp & Paper Company Limited was established.
Abitibi’s founder was an American named Frank H. Anson, born in 1859 in Niles, Michigan. Before coming to the paper business, Anson had worked as a railroad ticket agent, rubber prospector, exporter, and as general superintendent of Ogilvie Flour Mills in Montreal. While at Ogilvie, Anson became interested in the mining wealth of Ontario’s northern reaches, and in 1909 Anson hired two young men from McGill University to prospect for him in that remote part of Canada. The students found no minerals but did recommend that Anson start a paper mill along the Abitibi River, from whose swift current electrical and mechanical power could be generated to run such an operation.
With the abolition of the U.S. paper tariff drawing closer every day, Anson enlisted the financial backing of Shirley Ogilvie, son of the Ogilvie Flour Mills family. In 1912 he incorporated Abitibi Pulp & Paper Company Limited. In 1913 he built the company’s first mill on the Abitibi River, some 300 miles north of Toronto at Iroquois Falls. In 1914 Abitibi Pulp & Paper changed its name and reincorporated as Abitibi Power & Paper Company Limited, since the firm also sold electric power from its hydroelectric facility. Anson’s timing was very good: World War I soon drove up the price of newsprint to an all-time peak of US $65 per ton, and the new Canadian paper companies enjoyed unrestricted access to the immense U.S. markets.
Antitrust Investigations into Newsprint Association, 1917
So successful were the paper companies on both sides of the border that another round of investigations of the industry was launched, and in 1917 the U.S. Department of Justice began antitrust prosecution of the members of an industrywide cooperative group called the News Print Manufacturers Association. The association’s membership pleaded no contest, paid US $11,000 in fines, and dissolved the organization. Still, the price of newsprint nearly doubled by 1920 to a new record of US $112.60 per ton.
The newsprint industry’s history of antitrust allegations and cyclical depressions seemed to be a result of three factors: the enormous cost of building new plant capacity; the relative inelasticity of demand for newsprint (sales do not tend to increase when the price drops); and the highly vocal and influential nature of the product’s consumers, the newspaper community. Since competition often proved fatal, newsprint manufacturers tried to curb competition, resulting in well-publicized accusations by the newspapers of antitrust violations.
Decade of Expansion, 1920s
The postwar price peak encouraged a full decade of nonstop expansion in the Canadian paper industry, which nearly doubled its capacity by the year 1930. The consequence of this expansion was a long decline in the price of newsprint. By the end of the decade, it had fallen to about US $62 per ton. There was also a growing overcapacity, which threw the industry into a premature depression of its own as early as 1928.
Abitibi Power & Paper had participated enthusiastically in the decade of expansion. It entered the fine-paper business with the purchase of a sulfite pulp mill at Smooth Rock Falls, Ontario; acquired substantial interests in Manitoba Paper Company and Sainte Anne Paper Company; and built its own mills. It became one of the industry’s more important competitors.
Faced with the problems of increased capacity and falling prices, Abitibi and other paper manufacturers concluded that their best chance for collective survival was to amalgamate their holdings. Accordingly, in 1928 Abitibi engineered a quintuple merger, buying up the remainder of Manitoba Paper and Sainte Anne Paper and adding three others—Spanish River Pulp and Paper Mills, Fort William Power Company, and Murray Bay Paper Company. These, and a number of subsequent purchases by Abitibi, proved disastrous; but at the time it was hoped that by consolidating the industry could prevent price competition and increase production efficiency. That strategy might have succeeded in a thriving economy, but instead Abitibi was hit by the Great Depression of the 1930s and soon was in desperate straits.
Abitibi Goes into Receivership, 1932
By 1932 sales had dropped to a fraction of their earlier levels, while the company’s C $50 million debt was more than four times what it had been in 1927. This combination could not be sustained long, and on June 1, 1932, Abitibi defaulted on interest payments and was thrown into receivership. For the next 14 years Abitibi was directed by a court-appointed receiver, whose task it was to stabilize the company’s finances, pay down the outstanding debts, and return the company to its shareholders at some future date.
By 1933 the price of newsprint finally stabilized, allowing Abitibi to begin the long road back to solvency. The remainder of the 1930s was not a bad period for Abitibi, which managed to earn a fairly steady operating income to reduce its debt and maintain its physical assets. World War II revived the economy, and in 1940 Abitibi sales jumped immediately and remained between C $25 million and C $30 million for the duration of the war, providing the company with an excellent return and setting the stage for an end to receivership.
In 1943 the premier of Ontario appointed a committee for the purpose of designing a plan to take Abitibi out of receivership. After the committee’s recommendations were accepted by all the creditors in 1946, the company was formally independent once again. Abitibi’s 14-year receivership was the longest and most important in the history of Canadian industry, a trauma that would leave its mark in the form of a conservative corporate philosophy and deep skepticism about future expansion of capacity. Abitibi’s experience during the Depression was only an extreme example of the Canadian paper industry as a whole. When a remarkable postwar surge in demand for newsprint raised and prompted U.S. demands for increased capacity, the Canadian producers generally chose to increase production speed at existing plants rather than add new ones.
Company Rebounds After World War II
Abitibi Chief Executive Douglas W. Ambridge strongly concurred with the prevalent conservatism, guiding Abitibi through two postwar decades of bountiful sales and profit increases while avoiding unnecessary capital expenditures. In this he was helped by the extraordinary expansion the company had undertaken in 1928, which provided Abitibi with a reserve of production capacity so great that corporate assets did not surpass those of 1928 until 30 years afterward. Abitibi thus merely made use of what plants it had to meet the rapidly growing demand of the 1950s, and Ambridge was able to keep debt low and earnings per share extremely high. After the years of receivership, the 1950s were a new golden age.
We are a leading Canadian-based manufacturer and global marketer of newsprint and uncoated groundwood papers. Operating 18 mills throughout North America and the United Kingdom, our vision is to be the world’s preferred marketer and manufacturer of papers for communication.
Name Changed in 1965
In 1965 Abitibi Power & Paper Company Limited changed its name to Abitibi Paper Company Ltd. Abitibi had been feeling the effects of the new U.S. presence as early as 1962, when, together with the rest of the Canadian industry, it entered a decade of declining net income and diminished share of the critical U.S. market. To counteract this trend, Abitibi overcame its habitual reluctance to expand with the 1968 purchases of Cox Newsprint, Inc. and Cox Woodlands Company for US $36.58 million. Cox, located in Augusta, Georgia, added 150,000 tons per year of newsprint capacity to Abitibi’s Canadian holdings of 1.1 million tons and gave the company a presence in the booming southern U.S. industry.
Acquires Majority Interest in The Price Company Limited in 1974
A new generation of leaders at Abitibi, headed up by Chief Executive Officer Tom Bell and Chief Operating Officer Harry Rosier, became increasingly aggressive in the search for additional capacity. Three exceptionally lean years were followed by an upsurge in 1973–1974, when Abitibi sales soared from C $307 million to C $552 million. The company’s capacity was strained, and Rosier suggested that it would be cheaper for the company to buy existing mills than to build them from scratch. After a brief search for likely targets, Bell and Rosier gained control of 54 percent of the outstanding common shares of The Price Company Limited, another Canadian paper concern with 1974 sales of C $335 million.
Like Abitibi, Price was strongest in newsprint and kraft production, but it had no fine-paper and building-materials divisions. It recorded a significantly higher proportion of its sales outside North America than did Abitibi. Both companies had modest but profitable base-metal mining operations in Canada, and together they controlled rights to about 50,000 square miles of forest land—an area somewhat smaller than the state of Illinois. Price was a company much older than Abitibi, dating back to the early 19th century and the British navy’s need for a new source of lumber for its masts. In 1910, William Price had been sent by a leading London lumber merchant to Canada to organize the new operation, and Price subsequently started the company bearing his name.
No sooner had Abitibi completed its 22-day, C $130.11 million conquest of The Price Company than the newsprint market collapsed, cutting the combined companies’ 1975 net sales by two-thirds at a time when its debt had nearly doubled. Once again, Abitibi’s poor timing led indirectly to a change in ownership. Caught in a cash squeeze, Abitibi tried to placate union demands with big pay hikes and thereby avoid a disastrous strike; instead the unions pushed their advantage and forced the strike anyway. The walkout was bitter and lasted for months, and by the time the economy rebounded in 1977 Abitibi was still trying to put its shaken house in order. In October 1978 Abitibi agreed to buy about ten percent of Price’s outstanding stock from Consolidated-Bathurst—a Canadian company that had bid against Abitibi for control of Price in 1974 and still held ten percent of Price’s stock. Later that month, Abitibi purchased Price’s remaining shares. Abitibi paid about C $95 million for the 46 percent interest outstanding.
Owned by Olympia & York During the 1980s
In December 1978 Consolidated-Bathurst bought ten percent of Abitibi’s stock and set off a prolonged bidding war for control of the company. When the dust settled 15 months later, Abitibi-Price—which had changed its name in October 1979—was owned by Olympia & York, a Toronto-based real estate holding company run by the Reichmann family. Olympia & York, whose holdings were so vast that Abitibi-Price figured as a footnote in their annual reports, paid C $670 million for 92 percent of Abitibi-Price’s stock. Olympia & York appeared to be the ideal silent partner for Abitibi-Price’s management, offering great financial strength when needed but never meddling in the affairs of a business about which it knew little.
During the 1980s Abitibi-Price made a concerted effort to lessen its dependence on the brutally cyclical newsprint business. It sold off plants, streamlined operations, and focused its efforts on markets where it felt it could be a leader. By the end of the decade the company’s diversified group operated the largest network of paper distributors in Canada, the largest envelope manufacturer and largest school and office supplies maker, and one of the leading producers of building materials in the United States. The diversified group in 1990 accounted for approximately half of all corporate revenue, with the remainder generated by the paper group’s two divisions of newsprint and printing papers. Newsprint remained the most profitable segment, however, and was the heart of Abitibi-Price’s various holdings. After four straight years of bullish profits, the bottom dropped out once again in 1989, and in 1990 Abitibi-Price lost C $45 million.
Newsprint Market Suffers in the Early 1990s
In 1989–90 the newsprint industry entered its worst period since the Great Depression. From 1990 to 1995, Abitibi-Price lost hundreds of millions of dollars. In 1991 a global newspaper glut forced Abitibi-Price to close or sell mills and decentralize its operations to regain profitability. Ronald Oberlander became the company’s new CEO. He adopted a new strategy to become the world’s finest paper company rather than the world’s largest. He also began shifting profit responsibilities away from corporate headquarters to the managers at the company’s plants and mills.
In spite of falling pulp prices, Abitibi-Price managed to report an operating profit for the first six months of 1991. A C $20 million restructuring charge left the company with a net loss of C $ 11.2 million on revenue of C $ 1.46 billion for the first half of 1991. That was an improvement over the same period of 1990, when the company lost C $15 million on revenue of C $1.59 billion. The 1990 loss was affected by a one-time charge of C $42.6 million. Operating profits for the first half of 1990 were a strong C $45.5 million compared with C $2.6 million for the first half of 1991.
In June 1992 Abitibi-Price announced that it would sell its U.S. building products division for US $100 million (C $120 million) to two separate buyers. Three of the four units involved were sold to an investment group formed by New York-based investment banker Kohlberg & Co. and George T. Brophy. The fourth unit, a national supplier of interior wood products from facilities in Hiawatha, Kansas and Lumberton, North Carolina, was sold to an investment group led by Alan J. Gitkin of Wayne, New Jersey. It would change its name to Flair Fold.
For 1992 Abitibi-Price reported a loss from continuing operations of C $200 million, compared with a loss of C $58 million for 1991. Overall, the company reported an after-tax loss of $219 million for 1992 after discontinuing some of its noncore assets. That compared with an after-tax loss of $76 million in 1991. Severe price erosion, caused by a continued oversupply of the company’s paper products, was blamed for the poor results. Sales improved marginally to C $1.7 billion in spite of an almost ten percent increase in tonnage sold. Included in the loss for 1992 was a charge of C $60 million relating to the permanent closure of the Thunder Bay newsprint mill. Ownership of a second mill in Thunder Bay was in the process of being transferred to its employees. The company was continuing to focus on its core business, the manufacture and marketing of groundwood papers. Other divisions included office products and converted products.
In 1992 Olympia & York, which held a controlling interest in Abitibi-Price, filed for protection from its creditors. It owned some 54.5 million shares of Abitibi-Price, an 82 percent stake. With Olympia & York’s bankruptcy filing, the shares came under the control of a banking syndicate led by Hong Kong & Shanghai Banking Corporation Ltd., who appointed Salomon Brothers of New York and RBC Dominion Securities of Toronto to advise on their disposal.
In spring 1993 Abitibi-Price was targeted by the Energy and Paperworkers Union of Canada (CEP), which counted 4,000 Abitibi-Price employees among its 35,000 members in eastern Canada. Nationwide, CEP represented about 137,000 workers. Among the union demands were job security, significant wage hikes, cost-of-living indexing, and improved pensions. Abitibi-Price’s labor force had been cut back from some 14,000 in 1990 to 8,600 at the end of 1992. Closing one of the Thunder Bay mills in 1992 eliminated 400 jobs.
For the first quarter of 1993, Abitibi-Price reported its first quarter-to-quarter improvement since 1988 when it cut losses from continuing operations by 24 percent. The company would not have a profitable quarter until 1995, when it reported annual net income of C $273 million on net sales of C $2.8 billion.
To cope better with the newsprint industry’s cyclical downturns, Abitibi-Price developed what it called a “Cornerstone Strategy.” Criteria were established for each mill that would enable it to turn a profit in even the most severe cyclical downturn. As part of its new cornerstone strategy, mills that did not meet those criteria were put up for sale. In early 1997 the company put up for sale its 75-year-old Fort Williams newsprint mill in Thunder Bay, Ontario, and associated timberlands.
Abitibi-Price and Stone-Consolidated Corp. Merged in 1997 To Form Abitibi-Consolidated, Inc.
In February 1997 Abitibi-Price and Stone-Consolidated Corporation announced plans to merge operations and become the world’s largest newsprint and uncoated groundwood producer. The new company, to be called Abitibi-Consolidated Inc., would be created by a tax-free amalgamation following an exchange of stock. The combined company would have market capitalization of C $4.1 billion, almost double the capitalization of C $2.2 billion of the industry’s largest producer, MacMillan Bloedel Ltd. Shareholders of Abitibi-Price and Stone-Consolidated each would receive approximately one share of the new company for each share they held. The merger was completed in May 1997.
At the time of the merger, it was expected that Chicago-based Stone Container Corporation, which owned about half of Stone-Consolidated, would hold on to its shares and vote in favor of the transaction. Stone Container would own about 25 percent of the new company. Before the end of 1997, however, Stone Container sold its 48.8 million shares of Abitibi-Consolidated to raise cash needed to reduce its long-term debt of US $4 billion. Following the disposal in the early 1990s of the 54.5 million shares previously held by Olympia & York, Abitibi-Price shares were held widely, with two U.S. institutions holding about 20 percent of the stock between them.
Abitibi-Price CEO Ronald Oberlander became the operating chairman of the new company, and Stone-Consolidated CEO James Doughan became Abitibi-Consolidated’s new president and CEO. The two expected to achieve savings of $100 million annually—later revised to $200 million—just by eliminating duplications in the selling and administrative areas. At the time of the merger, Abitibi-Price was planning to sell its Fort Williams facility in Thunder Bay and was seeking to sell other noncore assets. Including those mills, Abitibi-Consolidated would start operations with a total of 18 paper mills: 14 in Canada, three in the United States, and one in Great Britain, plus seven wholly owned or affiliated sawmills in Canada.
Analysts seemed to agree that the merger made sense, given the deeply cyclical nature of the North American newsprint industry. The emergence of stronger players through consolidations such as this one was seen as leading to more rational markets. Analysts expected shareholders to benefit as a result of the merger.
In terms of output, Abitibi-Consolidated was expected to have a total capacity of 2.8 millions tons for newsprint, exceeding current world leader Fletcher Challenge Ltd. of New Zealand’s capacity of 1.8 million tons. For uncoated groundwood, Abitibi-Consolidated would have a capacity of 1.5 million tons, more than leader UPM-Kymmene of Finland’s capacity of 1.2 million tons. Overall, Abitibi-Consolidated would become the world’s eleventh largest pulp and paper producer in terms of tonnage and would rank seventeenth internationally in sales. It would have about a 15 percent share of the world’s paper market.
Following the merger, Abitibi-Consolidated announced that its headquarters would be in Montreal, where Stone-Consolidated was headquartered, rather than in Toronto, where Abitibi-Price’s main office was located. About half of Abitibi-Price’s 220-person headquarters staff in Toronto was expected to relocate to Montreal. The goal was to make the Montreal headquarters equally balanced between employees of the two former rivals.
Although the merger was completed in May 1997, results for the new company were annualized for 1997. Abitibi-Consolidated reported a net loss of C $121 million after amalgamation and restructuring charges. Annualized net sales were C $4.16 billion. It reported an upbeat fourth quarter, however, posting net income before restructuring charges of C $57 million. For 1998, the company planned on keeping a tight lid on costs and capital spending to achieve profitability.
In March 1998 Abitibi-Consolidated was unsuccessful in its hostile takeover attempt of one of its major competitors, the Montreal-based newsprint producer Avenor Inc. Its bid of C $2.8 billion was surpassed by a C $3.5 billion bid by U.S.-based Bowater Inc. Abitibi-Consolidated’s bid was a sign that it was in an acquisition mode. Investor interest appeared to be increasing in the company, which saw the value of its stock rise by some C $500 million after it announced its bid for Avenor.
As part of its strategy to eliminate or sell off noncore assets, Abitibi-Consolidated announced in April 1998 that it had completed the sale of the U.S. and Mexican operations of its Office Products Division to United Stationers Inc. for approximately US $110 million. The three business units that were sold were Azerty, which distributed computer supply consumables, peripherals, and accessories in the United States and Mexico; Positive ID, which distributed bar-code scanning products; and AP Support Services, which provided outsourcing services in direct marketing, telemarketing, and other areas. The three units had combined annual sales of about US $350 million.
For the future, it appeared likely that Abitibi-Consolidated would continue to focus on its core business and seek to achieve profitability through tight controls on costs and capital spending. On the other hand, it has announced that it will continue to look for acquisition opportunities to achieve further economies of scale. According to Operating Chairman Ronald Oberlander, “Our plan in North America is to search out acquisitions which are the best fit and the best value.”
“Abitibi, 35,000 Workers Square Off for Pact Fight,” Toronto Star, February 26, 1993, p. 7.
Foot, Richard, “Bigger Is Better, Says Abitibi Chairman,” Calgary Herald, January 31, 1998, p. E7.
Fowlie, Laura, “Abitibi-Price Pact May Bring Peace,” Financial Post, May 26, 1993, p. 5.
Gibbens, Robert, “Abitibi-Consolidated Headquarters Will Be in Montreal,” Financial Post-Toronto, March 11, 1997, p. 8.
——, “Abitibi Shows a Profit as It Keeps a Tight Lid on Costs,” Financial Post-Toronto, February 12, 1998, p. 9.
——, “Stone Stays Cool Despite Rumors,” Financial Post-Toronto, April 12, 1997, p. 5.
——, “Stone To Sell Its Stake in Abitibi,” Financial Post-Toronto, October 28, 1997, p. 8.
Hill, Bert, and Lewis, Michael, “Avenor Sold to Bowater for $3.5B: U.S. Bid Is 20% Higher Than One by Abitibi-Consolidated,” Ottawa Citizen, March 10, 1998, p. B1.
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——, “Merger Creates Paper Giant,” Financial Post-Toronto, February 15, 1997, p. 1.
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“Merger Creates Paper Giant,” Northern Ontario Business, March 1997, p. 3.
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Parker, Wendy, “New Direction at Abitibi-Price,” Northern Ontario Business, September 1987, p. 35.
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“United Stationers Acquires the U.S. and Mexican Operations of the Office Products Division of Abitibi-Consolidated Inc. and Announces Financing Transactions,” PR Newswire, April 3, 1998.
—updated by David Bianco