Suzano and Fibria Secure Final Regulatory Approval to Combine Companies
Upon completion of the acquisition of Fibria, Suzano will have an annual production capacity of 11 million tons of market pulp and 1.4 million tons of paper, and have the capacity to ship exports worth R$26 billion to some 90 countries.
Dec. 13, 2018 - The European Commission (EC) on Nov. 29 approved under the EU Merger Regulation the acquisition of Fibria by Suzano. The decision is conditional on full compliance with commitments offered by Suzano.
Suzano and Fibria, both based in Brazil, are the two largest global suppliers of bleached eucalyptus kraft pulp ("BEKP").
The EC investigated concerns that the proposed acquisition would significantly reduce the level of competition in the market for the manufacture and supply of wood pulp, in particular BEKP. In particular, the merged entity would combine the two largest producers worldwide, three to four times larger than the next competitor.
Furthermore, Fibria had an offtake agreement since 2016 with Klabin S.A, another major Brazilian producer of BEKP. On the basis of this agreement, Fibria acted as an exclusive sales agent for all sales of BEKP produced by Klabin outside of South America. This further increased the combined volumes controlled by the merging companies, and effectively prevented the entry of Klabin as a competitor outside South America.
The proposed remedies
To address the Commission's competition concerns, Suzano offered the following commitments:
- the termination of the offtake agreement in place between Fibria and Klabin; and
- the transfer of all assets and personnel necessary to allow Klabin to independently sell BEKP in the European Economic Area (EEA), including: (1) storage capacity in the destination ports in the EEA, (2) shipping contracts and access to ports during a transitional period; (3) customers, credit history and other records; and (4) technical support and assistance during a transitional period.
These commitments eliminate the Commission's concerns in relation to the proposed acquisition. The proposed remedy reduces the merged entity's total capacity and sales, and ensures that Klabin's BEKP volumes, currently sold by Fibria, will not be under the control of the merged entity. In addition, the remedy facilitates the entry of Klabin as a new competitor into the EEA market, with incentives to grow further.
The Commission therefore concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns in the EEA. The decision is conditional upon full compliance with the commitments.
In a press release, Suzano said, “With reviews by all required antitrust agencies duly completed, the companies can now proceed with the consummation of the transaction. The corporate restructuring, which will be concluded on January 14, 2019, will create Brazil's fourth most valuable company (excluding financial institutions).”
Walter Schalka will lead the company as CEO.
“We are about to transform a dream into reality and set a true milestone for Brazil. We will combine the best operational and sustainability practices of the two companies, the best professionals and the most important innovation projects in renewable resources,” Schalka said.
Once the corporate restructuring is concluded, the company will have a new brand, changing its name to Suzano.
Suzano will have an annual production capacity of 11 million tons of market pulp and 1.4 million tons of paper. The company will have approximately 37,000 direct and indirect employees and 11 manufacturing units with the capacity to supply more than 90 countries and to ship exports worth R$26 billion, based on exports in the 12 months to September 30, 2018.
From January to September this year, the two companies reported operating cash flow of R$10.1 billion and consolidated net revenue of R$24.5 billion. Together they already have invested R$4.9 billion in the first nine months of the year.
The transaction will be concluded in accordance with the plan announced on March 16, 2018, when the merger agreement was signed. On September 13, 2018, the shareholders of Suzano and Fibria approved the terms of the corporate restructuring at their respective Extraordinary Shareholders Meetings.
All other conditions precedent for the merger of Suzano and Fibria have been fulfilled. The transaction was approved without restrictions by the antitrust authorities in the United States (May 31), China (Aug. 31) and Turkey (Sept. 6). In Brazil, the agreement was approved, also without restrictions, by the country's antitrust authority CADE (Oct. 11) and by the National Water Transportation Agency – ANTAQ (Nov. 14).
On November 29, the antitrust authority in Europe also approved the restructuring, subject to the early termination of the hardwood pulp offtake agreement between Fibria and Klabin S.A.
The corporate restructuring involves a series of steps. Each Fibria shareholder will receive 0.4611 common shares in Suzano and R$52.50 per common share, which will be adjusted as provided for in the merger agreement approved by shareholders. The total amount to be paid on the date of the transaction's consummation, i.e. January 14, will be announced to the market on January 10.
To fund the amounts to be paid to Fibria shareholders, Suzano has entered into commitments with international financial institutions to raise financing in the aggregate amount of US$9.2 billion, of which US$6.9 billion is a three-year bridge loan and the remaining US$2.3 billion is a six-year financing facility. The proceeds from the bridge loan signed in March, however, have been replaced over the course of the year by new funds at more attractive conditions. Due to the strong cash generation by Suzano in the intervening period, the capital requirement for completion has been lower than initially projected.
SOURCE: Suzano and the European Commission