Release Date: Monday, February 11, 2008
Vancouver, BC – Catalyst Paper Corporation (TSX:CTL) today announced that it has entered into a definitive agreement with a subsidiary of AbitibiBowater to acquire its Snowflake Arizona recycled newsprint mill for a total consideration of US$161 million in cash. The purchase price excludes trade receivables of approximately US$19 million that are being retained by AbitibiBowater. The acquisition will be financed through a combination of Catalyst Paper’s revolving credit facilities and a proposed C$125 million rights offering.
The Acquisition
The Snowflake mill, a leading recycled newsprint producer with annual production capacity of 375,000 metric tonnes on two modern paper machines, is regarded as one of the lowest cost newsprint mills in North America. The acquisition of the Snowflake mill will increase Catalyst Paper’s total newsprint production capacity to approximately 980,000 metric tonnes. The mill also houses a corrugating medium machine owned by Smurfit Stone Container Corporation, which is operated by the Snowflake mill. The Apache Railway Company, a short-line railroad operating freight service between Snowflake, AZ and Holbrook, AZ is also included in the transaction.
In 2006, the Snowflake mill generated earnings before interest, taxes, depreciation and amortization (“EBITDA”) of US$58 million on net revenues of US$195 million. For the last 12 months ending September 30, 2007, the Snowflake mill generated EBITDA of US$30 million on net revenues of US$185 million. These EBITDA figures exclude AbitibiBowater corporate charges.
The acquisition of the Snowflake mill assets will provide the company with:
•one of the lowest-cost newsprint mills in North America;
•geographic, fibre and currency diversification;
•the opportunity to expand into one of North America’s fastest growing metropolitan regions, with no other newsprint mill operating within a 1,600 kilometre radius;
•an energy self-sufficient asset with the potential to sell excess electricity onto the power grid;
•expected annual synergies of at least US$10 million through increased scale which will provide general overall cost reduction in purchasing, sales, marketing and other services, and optimization of product distribution networks; and
•favourable business environment and industry hosting conditions.
“Snowflake is a first-class newsprint mill,” noted Richard Garneau, president and chief executive officer of Catalyst Paper. “We are very pleased to announce this transaction as the Snowflake mill will improve our cost-competitiveness, strengthen our presence on the west coast of North America and provide us with a more freight logical way to serve existing as well as new customers. In addition, this acquisition will provide Catalyst with a natural hedge against Canadian dollar fluctuations and is particularly timely in the current environment of virgin fibre supply constraints.”
The acquisition of the Snowflake mill is subject to the consent of the U.S. Department of Justice, other customary conditions and completion of the rights offering financing and is expected to close in the second quarter of 2008. The transacting parties have also agreed to a three-year supply contract under which AbitibiBowater will provide approximately 40% of the Snowflake mill’s recycled fibre supply in the first year, decreasing in proportion over the life of the agreement. Catalyst Paper intends to source the remainder of the mill’s fibre requirements directly from the recycled fibre market in western North America.
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