In June the board's of directors of Enso Oyj, a listed Finnish company and one of Europe's largest forest industry groups, announced that the Company was to merge with Stora, a listed Swedish paper and packaging board company with a history dating back from the 13th century. In the same month the Finnish parliament decided to revoke the requirement relating to the state's one-third minority interest in Enso, thus achieving a possibility to reduce the state ownership on which the entire combination is contingent.
In July, an extraordinary meeting of Enso Oyj's shareholders approved an amendment to the Company's Articles concerning an issue of shares to Stora shareholders.
This Nordic combination will, if carried out according to plans, create the world's largest paper and packaging board company, to be named STORA ENSO. Enso and Stora had combined net sales in 1997 totalling close to 11 billion US$ and employ some 40 000 people. The new company will have a total production capacity of over 13 million tons compared to the world's second largest paper and packaging board company, North American based International Paper with a total production capacity of approximately 10.5 million tons.
Stora Enso will hold a leading position in Europe as well as globally in many of its core products; publication papers, fine papers and packaging boards. Stora Enso's primary market will be in Europe but he group will also have a strong foundation for continued global expansion.
Due to Stora Enso's strong market position the EU competition authorities have announced that more time will be needed to examine the proposed combination. In an EU bulletin, the Commission stated that many competitors and customers have expressed their concerns regarding the dominating market position Enso and Stora would gain by a combination of forces. Especially the packaging board branch has been seen problematic. The merger is supposed to lessen the competition and weaken the market-mechanisms within the EU, hence making it difficult for new companies to enter the market.
According to Finnish newspapers Stora Enso will be forced to divest some of its liquid packaging board production. Stora Enso would have a market share of approximately 70 % in liquid packaging board products.
It should be noted that many of the key products, among others liquid packaging products, could be imported to the EU from e.g. US based paper companies, thus neutralising Stora Enso's dominating market position, and the distorting competition effects thereof. Many North American based paper companies have recently established subsidiaries or joint ventures in e.g. Eastern Europe, providing them with an instant presence at the EU markets as well.
The EU Commission investigates all mergers, where the merging companies' consolidated turnover exceeds FIM 30 billion (approximately US$ 6 billion). The consolidated turnover of Stora Enso is expected to reach up to around FIM 60 billion (US$ 12 billion). The Commission can forbid a merger if it results in a dominating market position.
The Commission is expected to resolve the Stora Enso issue within 1998.
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