A study reviews the reasons for the failure of the American merger of Stora Enso
A recent publication by Aalto University School of Science and Technology reviews the assumptions made by the management of Stora Enso – the largest paper producer in Europe – that led to the acquisition of the North American Consolidated Papers in the year 2000. With the merger Stora Enso attempted to grow into a truly global company in the forest industry.
The study is the master’s thesis of Antti Koulumies, titled “The Assumptions Behind an Acquisition: Case Stora Enso – Consolidated Papers”. Koulumies concludes that several assumptions by Stora Enso’s management of the nature and development of both the global market economy and the markets in the United States proved not to hold.
”The iniative for my study came from four former executives of Stora Enso who wished for closure and that a proper account was made of the acquisition”, Koulumies explains.
The estimates and predictions of Stora Enso’s management, financial advisors, competitors, and the American seller of Consolidated Papers are reviewed in interviews in the study. The interviewees outline their views on the precedent condition of the market, the development of the market, and Stora Enso’s managements capability to execute the merger.
According to the study, the main reason for the downfall of the merger was that the relation between economic growth and the demand for magazine and fine papers was disrupted at the same time as Asian paper manufacturers started a price war in the American paper market. Even though the profitability of Consolidated Papers had declined before the merger, the trend was not expected to continue. Furthermore, foreign currency exchange rates were not anticipated to increase the costs for Stora Enso in the merger. The considerable weakening of the US dollar between 2000 and 2007 nevertheless caused a significant part of Stora Enso’s losses upon it selling its North American business in 2007.
The price of the acquisition was considered high in the press at the time Stora Enso’s management and board were considering the merger. Although, due to nearly matching competing bids, the deal would not have been carried out at a lower price. Notwithstanding, the study states that several estimates made in the press of the final losses of Stora Enso have been exaggerated. A realistic estimate is between 2.0 and 2.7 billion euros.
According to Koulumies, the tool kit developed for the study could be used to research the UMTS deal by Sonera or the Navteq deal.
“Additionally, the study raises, among others, the follow-up question whether the selling of the North American functions was the right solution or not.”
The research was funded by Liikesivistysrahasto – The Finnish Foundation for Economic Education. The study is a part of a joint research venture which looks into the evolution of forest industry and the companies in it. Participating in addition to Aalto University are the University of Jyväskylä and Tampere University of Technology.