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Upon purchasing Korsnas Packaging company, Segezha Pulp and Paper Mill becomes a new No.2 player in the global paper sack market

Investment AB Kinnevik has officially announced that it has entered into an agreement to sell its subsidiary Korsnäs Packaging to the Russian company Segezhsky Pulp and Paper Mill, Inc. The agreement is signed on December, 15th in Stockholm (Sweden). The sum of transaction makes €73,5 million. The transaction is subject to approval by competition authorities and is expected to be finalised in the first half of 2006.

In the press release distributed by Investment AB Kinnevik (www.kinnevik.se) in particular it is emphasized:

Korsnäs Packaging is Europe's second largest manufacturer of industrial paper sacks. It produces about 850 million paper sacks annually in high-quality production facilities in nine countries. In recent years Korsnäs Packaging has improved its profitability despite difficult market conditions in Western Europe and successfully capitalised on the significant growth in Eastern Europe.

Segezha Pulp and Paper Mill, Inc., (Karelia, Russia) is an integrated pulp, paper and packing business. It is Russia's largest producer of sack paper and industrial paper sacks, with significant export of sack and kraft paper. The combination of Segezha Pulp and Paper Mill's paper production capabilities with Korsnäs Packaging's pan-European market coverage provides an excellent industrial fit between the two companies.

The transaction creates a new No. 2 player in the global paper sack market, with an annual production of some 1.1 billion industrial paper sacks, combined with a sack paper capacity of about 300,000 tonnes. It also strengthens Segezha Pulp and Paper Mill, Inc., and Korsnäs Packaging's already strong position in the fast growing Eastern European, CIS and Russian markets and enables a more efficient utilisation of the production units.

Comments of Segezha Pulp and Paper Mill, Inc., Director General Vasily Preminin:

- Purchasing of Korsnäs Packaging company is a logic continuation of strategic plans of Segezha Pulp and Paper Mill, Inc., regarding strengthening and expanding its presence in the world market.

The only way the enterprise can develop is through increasing volumes of manufacture of high-quality production, in our case it is sacks made of kraft paper. This sector of pulp and paper industry is very hard: in the world it is consumed about 40 billion sacks a year, half of it is paper packing. The new "know-how" have allowed to reduce the quantity of layers of paper sacks - due to changing the paper properties. Thus, consumption of kraft paper in the world will be reduced inevitably.

Segezha Pulp and Paper Mill, Inc., can't take the liberty to reduce production volumes, as it is an economic deadlock. Modernization of the equipment accomplished at the enterprize on the entire cycle strategically results in doubling of paper manufacture against the present level - up to 600 thousand tons a year. We have to make sacks of all paper we produce, to make more sacks - not a few percents, but a few times more, up to two billions pieces a year! Although, it is a few times more than domestic industry needs, where we have already received the lion's share of the market: four of five sacks consumed in the cement industry are from Segezha.

There is only one way out - to expand our presence in the European and Asian markets. No one will let us there as a favour for no particular reason and former successes. In Europe the market of paper sacks very strict, and a number of companies in safe countries even allow production at a loss - provided that they do not lose consumers. In a word, the Russian manufacturer will not be let in the world market for no particular reason.

About this, and also that Segezha Pulp and Paper Mill, Inc., would have to purchase companies manufacturing sacks in Europe, I spoke in the end of November in Veinna in my report at the anniversary conference of Adam Smith's Institute. I'm quite satisfied to tell, that strategic plans of Segezha were understood and approved by both colleagues in the pulp-and-paper branch, and representatives of the largest financial and investment structures. Now the plan became a reality.

Korsnäs Packaging is one of divisions of the largest Swedish concern Korsnäs AB that has a 150-year history, in the list of world manufacturers of paper packing it is on the honourable second place. It manufactures about 850 million sacks a year, and has a number of exclusive products. The company has enterprises in Spain, Germany, Italy, Holland, Denmark, Czechia, Romania, Serbia and Ukraine, and also it has marketing structures in several countries of the world.

A few months will pass from the moment of signing the agreement to real assumption of management of the enterprises. Much should be done and reconceived anew. Perhaps, it is a new stage and an important precedent in the history of both Segezha Pulp and Paper Mill, Inc., and domestic industry.

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Created: December 15, 2005. Last updated: December 16, 2005.
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