UPDATE 1-Paper Excellence to enter U.S. market with $3 billion Domtar deal

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(Adds deal details, industry background)

May 11 (Reuters) - Paper Excellence said it will buy U.S rival Domtar Corp in an all-cash deal valued at about $3 billion, as the Canadian paper and packaging company looks enter the U.S. market.

The pandemic-induced lockdowns of schools, offices, retailers and other businesses have hit orders for paper, while demand for pulp, primarily used in tissues, has picked up.

Fort Mill, South Carolina-based Domtar is among the world's largest producers of market pulp used to make paper, tissue, towels, diapers, personal hygiene items, and one of North America's top producers of freesheet paper, used for everything from business memos to copy paper.

Paper Excellence offered to pay $55.50 per share to Domtar, representing a 37% premium to its stock's close on May 3, the day before Bloomberg first reported deal talks.

Paper Excellence will continue the operations of Domtar as a stand-alone business entity, after the deal closes in the second half of the year. (Reporting by Rithika Krishna in Bengaluru; Editing by Shinjini Ganguli)