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Domtar Inks Deal to Acquire Appvion's POS Paper Business

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Zacks Equity Research
·4 min read
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Domtar Corporation UFS has entered into an asset-purchase agreement with Appvion Operations, Inc. to acquire its Point of Sale (POS) paper business. Notably, the agreement includes the coater and related equipment located exclusively in the West Carrollton, OH facility and a license for all corresponding intellectual property. The deal is likely to close in the second quarter this year.

Domtar's world-class paper-making capabilities, together with the West Carrollton coater's substantial scale, will create a globally-competitive POS paper business while providing new alternatives for the company’s growth.

The West Carrollton asset provides an opportunity for Appvion’s POS business employees to become part of an integrated pulp and paper producer, and leverage the coating asset to its maximum potential.

Appvion will work closely with Domtar to enable a smooth transition of the business and ensure its POS customers continue to receive the customer service and high-quality products according to their expectations.

Domtar recently reported better-than-anticipated fourth-quarter 2019 earnings, wherein earnings and revenues beat their respective Zacks Consensus Estimate. However, both top and bottom lines declined year on year.

In the current year, paper volumes are likely to trend with market demand due to recent capacity closures and lower inputs, while pulp volumes are likely to shoot up owing to higher pulp productivity at the Espanola and Ashdown mills. The Pulp and Paper business will benefit from lower planned maintenance costs.

The company expects supply and demand to be balanced over the short- to medium term. It also expects improved market conditions, supported by a favorable supply and demand outlook, for the softwood grades over the long term.

Domtar will benefit from its focus on cost savings, reduced overhead spending and customer portfolio-transition efforts. The company remains focused on margin improvement, while building value for customers. Also, Domtar is entering into strategic partnerships in order to boost business profitability.   

In sync with its investment in repurposing opportunity, the company permanently shut down two of its paper machines at the Ashdown, AR pulp and paper mill, and the Port Huron, MI paper mill. The move has reduced Domtar’s annual uncoated freesheet papermaking capacity by 204,000 short tons while providing 70,000 tons of additional softwood market pulp at Ashdown.

Domtar’s pulp business has strengthened significantly in recent years and is well poised to grow in the days ahead on anticipated volume improvement from strategic investments, the restart of Espanola and additional pulp production from Ashdown following the paper-machine closure.

Price Performance

The stock has depreciated 37.1% in the past year compared with the industry’s 22.4% decline.

Zacks Rank & Key Picks

Domtar currently carries a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the basic materials space are Daqo New Energy Corp DQ, Sibanye Gold Limited SBGL and Impala Platinum Holdings Limited IMPUY, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy has an expected long-term earnings growth rate of 29%. The company’s shares have appreciated 119.4% in the past year.

Sibanye has a projected long-term earnings growth rate of 20.4%. Its shares have surged 150.5% over the past year.
Impala Platinum has an estimated long-term earnings growth rate of 26.5%. The company’s shares have soared 214.3% in a year’s time.

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