Fort James Corporation
Fort James Corporation
120 Tredegar Street
Richmond, Virginia 23219
Fax: (804) 649-4428
Web site: http://www.jamesrivercorp.com
Sales: $7.0 billion (1996 est.)
Stock Exchanges: New York
SICs: 0811 Timber Tracts; 0831 Forest Nurseries & Forest Products; 2297 Nonwoven Fabrics; 2611 Pulp Mills; 2621 Paper Mills; 2656 Sanitary Food Containers, Except Folding; 2657 Folding Paperboard Boxes, Including Sanitary; 2671 Coated & Laminated Paper & Plastic Film; 2673 Plastics, Foil & Coated Paper Bags; 2676 Sanitary Paper Products; 2679 Converted Paper & Paperboard Products, Not Elsewhere Classified; 2861 Gum & Wood Chemicals; 3086 Plastic Foam Products; 3089 Plastic Products, Not Elsewhere Classified
Fort James Corporation is one of the largest makers of tissues, napkins, and other paper products in the world. It holds the number two position in tissues, trailing Kimberly-Clark Corp. Among the company’s many consumer brands are Brawny paper towels, Quilted Northern bathroom tissue, Vanity Fair napkins, Zee towel and tissue products, Mardi Gras napkins and paper towels, Green Forest tissues, and Dixie plates, cups, and cutlery; commercial brands are sold under the Preference and Envision brands. The company maintains operations in the United States, Canada, and Europe. Fort James was created in August 1997 through the merger of James River Corporation of Virginia, which was based in Richmond, Virginia, and was founded in 1969, and Fort Howard Corporation, which operated out of Green Bay, Wisconsin, and traced its history back to 1919.
Founding of James River in 1969
When Ethyl Corporation of Richmond, Virginia, was selling the Abermarle mill, its original papermaking facilities, in 1969, Brenton S. Halsey and Robert C. Williams, then two Ethyl engineers, snapped it up. The river that flowed past the paper mill inherited a namesake in the newly formed James River Corporation of Virginia. Ethyl had decided to concentrate on chemicals. The mill’s 25-ton-a-day paper machine and equipment left over from the 1850s could not produce enough of the commodity grades of paper that were the preferred profit-makers of much of the paper and pulp industry at the time. The operation was losing money badly. Halsey and Williams, independently interested in turning the mill around, ran into each other at a Richmond investment banker’s office and decided to work together. The two, who would soon be known as “Brent V Bob,” raised the capital, and bought the operation for $1.5 million. The two men then jointly designed the company’s logo. Halsey served as president of the fledgling firm, while Williams served as CEO.
They then followed a pattern that soon would become familiar to them. They determined that the mill was best suited to the production of specialty papers. They recognized that specialty paper requires a more worker-intensive, decentralized operation, with an emphasis on a knowledgeable and well-trained marketing and sales force. Halsey and Williams felt that large corporations were overlooking opportunities in specialty papers. They used their engineering expertise to upgrade the mill’s output to produce automotive air- and oil-filter papers, which had a high profit margin, and developed an in-house trucking system to provide immediate service to clients. By the end of a year they had coaxed earnings of $166,000 out of the aging mill.
Acquisitions Fueled Growth in the 1970s
In 1971 James River acquired the St. Regis Paper Company’s specialty mill in Pepperell, Massachusetts. James River employed many of the practices in the acquisition that would be company hallmarks for the next decade: friendly takeovers of ailing businesses that assure the cooperation of the seller; a decentralized approach that provides each mill with its own general manager, sales manager, production manager, and research -and-development director; and the utilization of middle managers within the acquired company to run it. James River also emphasized employee involvement and good relations with labor unions; in addition, it implemented company-wide profit sharing years before such plans became fashionable. James River’s takeovers also often involved the firing of most executives and the negotiation of wage concessions from workers.
On March 16, 1973, the company went public, selling 165,000 shares of common stock. Staying true to the nature of the company, Halsey and Williams began a company-subsidized employee stock-purchase plan.
In 1975 James River acquired J-Mass from Weyerhaeuser. In 1977 James River bought a failing mill in Jay, Maine, from International Paper. The output was changed from book paper to paper for airline tickets and copying machines. In its first year under James River ownership the Jay mill made $3 million. The same year James River took over Reigel Products Corporation from Southwest Forest Industries. By 1979 it had $96 million in sales. In 1978 Halsey and Williams purchased Scott Graphics from Scott Paper Company, renamed it James River Graphics, and started producing film coatings. By the end of the decade James River had made 10 acquisitions, had nearly 4,000 employees, and reached $297.9 million in annual sales.
Expanded into Consumer Paper in the 1980s
In 1980 Gulf + Western sold its 80 percent interest in Brown Company to James River in return for cash and James River stock. Gulf + Western Chairman Charlie Bluhdorn was confident that James River stock would be more profitable than Brown was for Gulf + Western. For James River, the acquisition was crucial. The deal included a Berlin, New Hampshire, pulp mill and its surrounding 170,000 acres of timberland. It was James River’s first in-house source of pulp, providing 40 percent of the company’s pulp needs. Along with the pulp, the deal included paper towels, folding cartons for food packaging, and a small cup operation. James River intended to divest these product lines; they were, however, unable to find a buyer. As a result, the deal doubled James River’s size and, for the first time, put it in the consumer-paper business; the filter specialists were suddenly makers of tissues, cups, and cereal boxes as well. While this diversification came about almost by accident and broke with the successful pattern of the 1970s, it turned out to be fortuitous. The new decade brought with it a slump in the auto industry, traditionally a big buyer of coated paper and other James River products. James River adjusted. By the end of 1981 industrial products only accounted for one-quarter of James River sales; communication and packaging papers, now a more stable market, made up the remaining 75 percent.
Once in consumer paper, James River did not shrink from new acquisitions. In 1982, Halsey and Williams once again used a stock-and-cash deal to double the size of the company; they bought the Dixie/Northern division, makers of Dixie cups; Northern toilet paper; Bolt, Brawny, and Gala towels; and folding cartons. The former owner, American Can Company, did not take James River’s offer to buy seriously at first; it could not see how little James River would finance the deal. Finance it James River did, and soon James River was applying its usual success formula to Dixie/Northern. American Can had been cutting corners on quality. James River cut costs by laying off 200 salaried and 120 hourly workers. It improved sales by redesigning products and emphasizing marketing. With American Can’s Alabama pulp mill included in the deal, James River became 70 percent self-sufficient in pulp. James River’s chief financial officer, David McKittrick, told Financial World, June 2, 1987, “When you peeled back the layers of complexity imposed on Dixie/Northern by American Can, you saw that the companies were in fact doing quite well and that business was actually sort of on a roll.”
Many analysts thought that the debt created by all these acquisitions would slow the company down. In 1983, however, Halsey and Williams purchased the H.P. Smith Paper Company, a subsidiary of Phillips Petroleum; a Canadian pulp mill from American Can; and Diamond International’s pulp and paper-making operations, including mills in New Hampshire, New York, and Massachusetts. The latter added the Vanity Fair brand of tissues and towels, giving James River a ready-made market in the Northeast.
The following year, James River moved its Northern bathroom paper and Brawny towels into the Northeast as well. In a campaign they called Operation Yankee, the company used a price-slashing policy and $20 million in advertising to take on Procter & Gamble and Scott Paper, the leaders in the field. Halsey said the new emphasis on expanding markets for its existing products reflected an industry slump, the lack of potential acquisitions, and the desire to direct capital toward internal improvements.
The acquisitions, however, did not cease. In April 1984 James River broke onto the international scene with the purchase of GB Papers in Scotland. In 1985 and 1986 the additions of the Arkon Corporation and the Cerex division of Monsanto were made, pushing James River further into the nonwovens market. These were relatively small purchases, however, leading up to the May 1986 acquisition of most of the interests of Crown Zellerbach Corporation, which once again doubled the size of James River. The company was now the number two tissue maker in the country, with a potential of $4.5 billion in total sales, and more than 35,000 employees. The new company, however, would take longer to consolidate than Halsey and Williams anticipated.
Our mission is to exploit James River’s excellent paper-based brands and existing value-added businesses, to propel the company into the ranks of first-tier companies —indicated by top quartile performance in our peer group in the aggregate of: total shareholder wealth creation; improvement in return on sales; improvement in return on assets; increase in unit sales volume per employee; new products as a percent of sales; change in aggregate market share.
The deal had not been an easy one. Halsey had stepped into the middle of a hostile takeover bid by Sir James Goldsmith, who had been angling for control of Crown in a raid replete with poison pill defenses and greenmail. Because of James River’s intervention, Crown shareholders saw their stock skyrocket, and had the option of buying into James River. James River got all the Crown papermaking operations. Goldsmith, however, might have gotten the best of the deal: property worth more than $1 billion, including Crown’s 1.6 million acres of timber. Goldsmith sold the timberland to Hanson PLC for $1.3 billion in 1990.
Smaller acquisitions continued to make headlines, as well: Canada Cup, Specialty Papers Company, and Amarin Plastics were bought in 1987; and Dunn Paper Company; the U.K. photo and drawing papers business of Wiggins Teape Group; and Armstrong Rees Ederer Inc. were bought in 1988. Acquiring half of France’s Kaysersberg, S.A., went a long way towards satisfying Halsey’s desire to challenge Scott Paper’s supremacy in the European tissue market. Overseas acquisitions were also made in Sweden, Spain, Turkey, and the United Kingdom. By 1988 the company was so big that the Federal Trade Commission blocked a proposed purchase of a South African-owned flexible packaging operation, with fears of reducing competition in that field.
The huge size of the company was affecting profits as well. From 1984 to 1988, the return on shareholders’ equity fell from 26 percent to 10.7 percent. The high price of pulp, combined with James River’s skyrocketing need for pulp, was the biggest culprit in this downturn. In fiscal 1989 James River was forced to buy 470,000 tons of market pulp domestically, with its new needs in Europe adding to the pulp deficit. This led to strategies to increase the internal supply of pulp: a Marathon, Ontario, pulp mill was tapped for a $280 million expansion in 1989. Williams also considered the use of recycled paper as a fiber source to be a major trend in the industry. James River was among the first producers to express interest in the use of recycled fiber for printing and writing paper production. The need for more fiber coincided with pending legislation that would require the use of some recycled fiber. By the end of 1989, there was some additional relief in sight for James River in the form of a major dip in pulp prices.
Restructuring Moves Highlighted Difficult 1990s
There were indications, however, that James River’s woes went deeper than pulp supply; after 20 years of endless acquisitions, it seemed possible that Halsey and Williams had bitten off more than they could chew. Many plants needed upgrading, but the company did not have the capital to make all major overhauls that were necessary. In April 1990 the company announced a 13.1 percent decrease in income from the previous year. Capital expenditures were down 16 percent. In May James River sold its nonwovens group for a much-needed infusion of cash. In August Halsey announced a major restructuring: the company would sell or shut down operations with annual sales of $1.3 billion. James River was lopping off the arm that had started the company: specialty papers. Williams declared that the company’s emphasis was now consumer products. James River would be made up of three businesses: consumer products, communications paper, and packaging. In the midst of this metamorphosis, in October 1990, Halsey, while retaining his mantle as chairman, stepped down as CEO in favor of Williams. The move was part of a long-considered management transition plan. The switch from the more acquisitionally minded Halsey to the managerially inclined Williams seemed appropriate to the newly retrenched company. In May 1991 the company sold its specialty papers business for $337 million in cash and preferred stock to AEA Investors, a management-led investor group, which then founded Specialty Coatings Group Inc.
By 1992, the year Halsey retired as chairman and Williams added that role to his duties, James River was continuing to struggle as the economic downturn highlighted the cyclicality of the company’s mix of assets. Revenue from bathroom tissue was being severely reduced thanks to pricing wars initiated by such competitors as Kimberly-Clark and Procter & Gamble, while the company’s communication papers operations were hurt by extremely depressed prices. Profits were reduced by the company’s high operating costs, which were at least in part caused by James River’s failure to reduce or eliminate redundancies that had crept into the operations as a result of the two decades of acquisitions. In response, James River in late 1992 launched another restructuring program, this one aimed at reducing labor and production costs in order for the company to be more competitive. A resulting charge of $305.3 million was recorded in 1992’s fourth quarter. By 1994, the company was able to reduce expenses by $200 million a year.
As the U.S. economy began its mid-1990s recovery and James River began to return to profitability, the company continued to restructure, eventually deciding to focus almost exclusively on consumer products. In March 1994 James River sold its 50 percent interest in Coastal Paper Company, a producer of lightweight papers based in Mississippi. That same year, the company sold 47,000 acres of timberlands. In August 1995 the company spun off to shareholders Crown Vantage Inc., which included much of James River’s communications papers unit and the specialty paper-based part of its packaging business. $480 million in proceeds from this spinoff were used in part to pay down the company’s still heavy long-term debt. In October 1995 Miles L. Marsh was brought on board as CEO, and in the following January became chairman as well, replacing the retiring Williams. Marsh, who had most recently engineered the turnaround of Pet Inc., brought to James River much-needed experience in consumer products.
Meanwhile, James River was building up a significant presence in consumer paper products in Europe. The company was the driving force behind the 1990 establishment of a joint venture called Jamont and by 1996 had bought out all of its partners to take full control of the venture. By that time, Jamont had established itself as the number three maker of towel and tissue products in Europe, with a market share of about 15 percent. Based in Brussels, the firm had 23 plants in 10 European countries. Nearly 30 percent of James River’s 1996 revenues were generated from its European operations. In early 1997 the company announced plans to open its first plant in Russia for the manufacture of bathroom tissue and napkins.
Divestments continued in 1996. In May the specialty operations business—which included specialty paper plate, napkin, and related tableware products—was sold to Fonda Group Inc. for about $30 million. In August the company’s flexible packaging group went to Printpack for $372.7 million. And in October Progressive Ink Company, LLC spent $27 million to buy James River’s CZ Inks Division, which specialized in high quality inks for packaging applications. The divestments enabled James River to substantially reduce its long-term debt, which fell from $2.67 billion in 1994 to $1.85 billion in 1996. Improved operational efficiency and Marsh’s bolstering of marketing efforts helped the company post healthy 1996 net income of $157.3 million.
1997 Merger with Fort Howard to Form Fort James
In late 1995 Kimberly-Clark had solidified its number one position in tissue products with its acquisition of Scott Paper Co. James River in turn moved to bolster its number two position by engineering the 1997 merger with Fort Howard Corporation, which created Fort James Corporation. Although called by the companies’ executives a “merger of equals,” the transaction really amounted to a James River takeover of the much-smaller Fort Howard.
Based in Green Bay, Wisconsin, Fort Howard was founded in 1919 by Austin Edward Cofrin. Traditionally secretive about its low-cost production techniques and its balance sheets, Fort Howard became a public company for the first time only in 1971, at which time its sales were about $100 million. Ten years later, sales exceeded $500 million. In 1988 Fort Howard became a private company once again thanks to a management-led highly leveraged buyout which left the company saddled with about $3.7 billion in debt. The company struggled over the next several years, burdened by this debt load and buffeted by the economic downturn of the early 1990s. After several delays, Fort Howard finally went public again in early 1995 through an initial public offering. In 1996 the company posted sales of $1.6 billion (compared to James River’s $5.69 billion).
Fort Howard brought to the merger not only a strong presence in tissue manufacturing but also a leading position in the commercial and industrial market—a perfect complement to James River’s consumer market strength. Fort Howard was also considered a low-cost operator—heavily utilizing recycled paper in its manufacturing; this experience in efficiency was expected to be leveraged companywide in the newly formed Fort James. A potential source of difficulty for Fort James was the mixture of Fort Howard’s nonunion plants with James River’s unionized facilities. The merger itself was a transaction valued at about $3.4 billion in stock, with the new company also assuming about $2.4 billion of Fort Howard debt. Soon after completion of the merger in August 1997, Fort James took charges of $45.2 million for early extinguishment of debt and $53.9 million for merger-related costs. James River’s Marsh became Fort James’s chairman and CEO, while Michael T. Riordan, Fort Howard’s chairman and CEO, became president and COO of Fort James. The initial board of directors included 11 people from James River and four from Fort Howard.
In addition to the potential conflict arising from the mix of union and nonunion operations, Fort James also had to deal with a bathroom tissue price-fixing lawsuit filed in May 1997 by the attorney general of Florida, which named both James River and Fort Howard, in addition to Kimberly-Clark, Georgia-Pacific, and others. The suit focused only on tissue sold in the commercial market, seeking damages as high as $600 million. This suit, the meshing of the various operations of the two predecessor companies, and an early 1998 establishment of Fort James headquarters in Deerfield, Illinois, guaranteed a hectic—if generally promising—beginning for a new American company.
James River Corporation; Fort Howard Corporation; Jamont N.V. (Belgium); Canada Cup Business; James River-Marathon, Ltd. (Canada); Hygie France; Dixie Benders Limited (U.K.; 50%); GB Papers Limited (U.K.).
Principal Operating Units
North American Consumer & Commercial Products; European Consumer Products; Packaging; Communications Papers.
Berman, Phyllis, “A Sweetheart of a Deal,” Forbes, September 3, 1990, pp. 39-40.
Carpenter, Kimberley, and John P. Tarpey, “A Southern Papermaker’s Yankee Campaign,” Business Week, October 14, 1985.
Cox, Jacqueline,“James River Chief Cited for Paper Industry Efforts,” Paper Trade Journal, December 15, 1981.
Ferguson, Kelly H., “James River Corp.: Refocus, Redefine, Restructure,” Pulp & Paper, November 1994, pp. 36-37.
Guyon, Janet, “A Joint-Venture Papermaker Casts Net Across Europe: James River’s Jamont Pins Ambitions on Its 13 Companies Across 10 Nations,” Wall Street Journal, December 7, 1992, p. B4.
James River Corporation: Two Decades of Growth, Richmond, Va.: James River Corporation of Virginia, .
Kimelman, John, “River of No Returns,” Financial World, June 8, 1993, pp. 49-50.
Lipin, Steven, “James River, Fort Howard in Merger Pact,” Wall Street Journal, May 5, 1997, pp. A3, A6.
Novack, Janet, “We Make Dozens of Mistakes, But They’re All Little,” Forbes, November 28, 1988, p. 186.
Smith, Kenneth E., “P&P Interview: James River Leaders Plan for Continued Strong Growth,” Pulp & Paper, January 1984.
Welsh, Jonathan, “Florida Suit Accuses Several Companies of Conspiring to Fix Toilet-Paper Prices,” Wall Street Journal, May 14, 1997, p. Bll.
—updated by David E. Salamie