Merger could create US paper colossus

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A colossus in the consumer paper-products industry may be about to emerge in the United States with rumours swirling yesterday of an impending merger between Kimberly-Clark, maker of Kleenex tissues, and Scott Paper.

Neither company would comment on a report in the Wall Street Journal that negotiations are under way for a stock-swap marriage valued at no less than $7bn. Citing "people familiar with the situation", the newspaper said the deal would create a paper giant with $11bn in annual revenue.

There has been speculation that Philadelphia-based Scott might be seeking a buyer since the arrival 14 months ago of Albert Dunlap as chief executive. He has dramatically streamlined the company by laying off nearly a third of its workforce and selling assets worth $2bn.

Asked to comment on the report, a Scott spokesman would say only: "There have been continuous rumours about what might happen since Al Dunlap took over but the company declines comment." At Kimberly Clark's Dallas headquarters, officials were similiary reticent.

According to the Journal, holders of Scott shares would be given Kimberly shares of an equivalent value to achieve the merger. With no premium offered to Scott holders, it would qualify as a tax-free stock-swap.

As the larger player, Kimberly Clark would in practice ingest Scott and the Kimberly name would probably be the one that survived. Once combined, the new company would have a substantial hold on the paper products market, particularly in areas such as nappies, tissues and paper towels.

Particularly vulnerable may be Procter & Gamble, which has some products in the same brand fields, especially paper towels. It is possible that Kimberly and Scott would face anti-trust objections from the federal government before their merger could be completed.

Shares in both companies rose marginally in early trading yesterday, continuing an upward trend in both over recent months. Kimberly stock has risen 17 per cent since the start of the year, while Scott stock, boosted by Mr Dunlap's activities, is up 28 per cent over the same period after doubling in value last year.

It is because this sharp improvement has already occurred in Scott's stock that Kimberly is understood not to be offering its shareholders any further premium.