Paper giants combine in $6.8bn deal

DAVID USBORNE

New York

Personal paper products giant Kimberly-Clark fuelled this year's US mergers rush with its announcement yesterday of its acquisition of rival Scott Paper in a stock-swap agreement worth $6.8bn.

The widely-anticipated deal, which the two sides hope to complete before the end of the year, will create a worldwide personal products powerhouse that will give Proctor & Gamble, current market leader, daunting new competition.

Kimberly-Clark, based inTexas, makes such brands as Kleenex tissues and Huggies nappies. Philadelphia-based Scott is best known for Scotties tissues and paper towels. While most existing brands are likely to endure, the new company will trade under the Kimberly name and is projected to have annual revenues beyond $11bn.

The marriage with Scott is expected to give Kimberly-Clark new leverage, especially in its global ambitions. It may prove most significant in Europe, widely considered a weak area for Kimberly but a strong one for Scott. Combined, the companies will have manufacturing plants in 32 countries.

The potential for improved worldwide penetration by the new company was underlined yesterday by Wayne Sanders, the Kimberly-Clark chief executive. "Our ability to deliver new products to new geographies after the merger is going to be incredible," said Mr Sanders, who will run the merged corporation.

Each Scott share will be traded for 0.8 of a Kimberly-Clark share, thus valuing Scott shares at $45, $3 below their trading level at the end of last week. News of the merger sent Kimberly-Clark shares climbing more than four points in morning trading in New York to $63.

One of the most dramatic so far, the transaction continues the accelerating trend of mergers and acquisitions in the US this year. So far in 1995, merger activity is up 9.4 per cent over last year, with notable surges in computer and banking sectors.

For Scott, yesterday's announcement represents the climax of 16 months of dramatic restructuring since being taken under the wing of chief executive Albert Dunlap. In what has been described as the swiftest turnaround in US corporate history, Mr Dunlap has laid off more than 11,000 employees around the world while increasing stock value by 160 per cent.

Mr Dunlap said: "The merger is the natural evolution of increasing shareholder value following Scott's dramatic turnaround."

While the transaction is certain to be scrutinised by competition authorities, Mr Sanders said he was confident that any obstacles would be overcome. The new corporation will control about 50 per cent of the US facial tissue market.