Glatfelter cements niche strategy with big Ohio deal

Glatfelter is getting three things with its acquisition of an Ohio company’s carbonless paper business.

Glatfelter is getting three things with its acquisition of an Ohio company’s carbonless paper business.

The York-based paper maker is getting a big foothold in the carbonless paper market, which has been shrinking, but which executives said still was attractive. It is getting a cheaper production facility for its book-publishing paper, a key line of business. And it’s getting a place to make the highly specialized products in which executives see the company’s future.

Glatfelter announced Feb. 22 that it would buy NewPage Corp.’s carbonless business, including facilities in Chillicothe and Fremont, Ohio.

“This acquisition makes our company significantly more valuable, and its benefits are realizable through factors we control and skills we possess,” George H. Glatfelter II, the York company’s chairman and chief executive officer, said in a conference call with investors.

Glatfelter executives did not break down just how much of the Ohio business will be devoted to each of the three pursuits they have in mind for it.

But all told, they expect it to make a lot of money. Glatfelter predicts that its earnings before interest, taxes, depreciation and amortization will jump more than $35 million by 2007.

That would be a huge earnings boost. Excluding special items, Glatfelter said it earned $15.6 million in 2005 and $13.4 million in 2004. The calculation excludes non-recurring factors such as the company’s sales of timberland.

The cost for all that growth? A cash payment of $80 million, the loss of about 200 jobs at Glatfelter’s Neenah, Wis., facility, which will be shut down — and a big management challenge.

“The real devil is in the details of executing our transition plans,” said William T. Yanavitch, Glatfelter’s vice president of human resources and administration.

The deal is a major investment in the strategy Glatfelter has been following since the start of the decade.

In the past six years, the company has abandoned commodities such as cigarette papers in favor of customized, niche products. The facilities in Ohio are state-of-the-art and make a good match for Glatfelter’s future as a specialized producer, executives said.

The acquisition would increase Glatfelter’s annual revenue by about 75 percent, to more than $1 billion. The company also would add about 1,700 NewPage employees, bringing its total U.S. work force to about 2,700, Yanavitch said.

That makes Glatfelter a much bigger company to run. But Yanavitch pointed out that Glatfelter had a similarly large work force in the 1990s, before it divested itself of some business units, and that it has completed acquisitions in the past.

Carbonless paper is used to make copies without using a carbon sheet between pages, Glatfelter spokesman Rick Whitmyre said. Multipart business forms, invoices and credit-card receipts typically are made with the paper.

Glatfelter snagged the NewPage business during a period of ferment in the carbonless paper industry. Carbonless paper firms have been spun off like Tilt-A-Whirls recently.

Nashua Corp. of Nashua, N.H., recently sold carbonless paper assets to a company controlled by Dunsirn Partners, a Wisconsin private equity firm. Dunsirn Partners itself is a 2005 spin-off from Minnesota-based Imation Corp. Imation, in turn, is a 1996 spin-off from 3M Co., also of Minnesota.

NewPage, which just spun off its carbonless business to Glatfelter, itself is a 2005 spin-off from Stamford, Conn.-based MeadWestvaco Corp.

NewPage announced shortly after beginning operations last spring that it was evaluating the future of its carbonless paper business. The company said at the time that it was weighing three options: selling the carbonless business to its managers and employees, selling to a third party or overhauling the unit and keeping it.

Net sales from the NewPage carbonless paper business decreased 15 percent between 2001 and 2004, according to a company filing with the U.S. Securities and Exchange Commission. The company said competing technologies, in particular electronic data transmission and storage, have reduced demand for carbonless paper.

The NewPage carbonless paper business is profitable, Yanavitch said.

Tom Stoddard, vice president of operations at paper distributor Andrews Paperhouse of York, said the carbonless paper market is declining. Companies buying into it probably expect the number of players to shrink, which would allow them to raise prices to profitable levels, he said.

Andrews Paperhouse, a division of New Jersey-based Central Lewmar, is based in downtown York.

The upheaval in the industry is the sign of firms trying to carve out new identities, Yanavitch said.

“I think what you’re seeing developing is clarity around different organizations’ strategy,” he said.