Controversial Domtar/Paper Excellence merger approved by Domtar stockholders

In one of the printing industry’s most consequential and controversial votes held online Thursday, July 29, 2021, stockholders of Domtar Corporation approved a proposal to adopt a business combination with Paper Excellence B.V whereby Karta Halten B.V. (an affiliate of Paper Excellence), will acquire all of the issued and outstanding shares of Domtar common stock for $55.50 per share in cash following an initial plan of merger agreement dated May 10, 2021. The adoption of the merger required a “yes” vote of stockholders holding a majority of the issued and outstanding shares of Domtar’s common stock who were entitled to vote on such a matter. Of those entitled to vote, 81.93% were in favour of the merger. Domtar also announced that clearances have been obtained under the anti-trust laws of Spain and the People’s Republic of China, following previous clearances obtained in the United States and Turkey, representing another step toward the closing of the merger. The merger is expected to be completed before the end of 2021, subject to receiving clearance under Canada’s Competition Act and other customary closing conditions.

Background and previous reporting

Back in May of this year we reported that Paper Excellence (Richmond, BC) and Domtar (Montreal & Fort Mill, South Carolina) had entered into a strategic business arrangement under which the Paper Excellence group of companies shall acquire all of the issued and outstanding shares of Domtar common stock for $55.50 (USD) per share in cash. Paper Excellence is a diverse manufacturer of pulp and paper – including printing and writing, packaging and specialty papers – that has built a vast worldwide network of mills and chipping plants. Domtar is an integrated manufacturer and marketer of uncoated, free-sheet paper in North America, and one of the largest manufacturers of pulp in the world. It has 13 pulp and paper mills and 10 manufacturing and converting facilities across Canada and the U.S. The all-cash mega-transaction represents a value of $2.8 billion (USD), or about $3 billion Canadian dollars. After the transaction closes, Paper Excellence intends to continue the operations of Domtar – but as a private, standalone business. However, the merger is not without controversy.-Paper Excellence is part of the multi-billionaire Widjaja family holdings of Indonesia. The acquisition will give Paper Excellence control over an additional 12 pulp and paper mills in North America (4 of them in Canada), as well as 9 manufacturing and converting facilities in 15 U.S. states. According to Bloomberg news, the transaction would take the U.S. publicly-listed Domtar private. And according to the global organization Natural Resources Defense Council (NRDC), the deal “would put at its helm a family that’s internationally notorious for both human rights abuses and deforestation.”

As the Halifax Examiner recently reported, Paper Excellence (through Northern Timber, an affiliate of Northern Pulp), owns 425,000 acres of woodland in Nova Scotia, and holds Crown leases on hundreds of thousands of acres. If the Domtar acquisition is approved by regulators under Canada’s Competition Act, Paper Excellence will gain 3 more mills in Canada that produce Northern Softwood Bleached Kraft Pulp – the Kamloops mill in British Columbia, and the Dryden and Espanola mills in Ontario. The newly-formed company would also take over the Windsor mill in Quebec, which the Domtar website notes “is the last fully-integrated paper mill in Canada with 400,000 acres of forest lands surrounding the mill.”

The Halifax Examiner’s incisive, investigative reporting by Joan Baxter also revealed that as recently as June 24, 2021, 68 organizations from around the world signed a letter to Domtar shareholders, financiers and customers. They urged them to “oppose the proposed acquisition by Paper Excellence.” The acquisition will also connect Domtar to Asia Pulp & Paper (APP) of Sinar Mas Group (SMG). The newspaper claimed that there’s clear evidence linking APP and SMG to 30 years of deforestation, forest and peat fires, and the destruction of wildlife habitat in the 2 million hectares of land under their control. It added that: “such fires and the company’s peat development have contributed to extensive greenhouse gas emissions. Reports also point to conflicts with local communities related to land grabbing, forest clearance and pulpwood plantation development in Sumatra and Kalimantan, Indonesia.”

We’ll continue to follow this story closely and will report the facts back to you in an objective and timely manner.

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