Suzano Management Plans to Conclude Fibria Merger by Jan. 14

By Reorg Research

Management for Brazilian paper and pulp producer Suzano Papel e Celulose said today during a call with investors that the process of merger with rival Fibria is running “according to expectations” as all resources for the closing of transaction are already guaranteed. On Thursday, the companies received the latest required regulatory approval, from the European antitrust authority.

Suzano said it must wait until Jan.14 to complete the transaction as a condition imposed by regulators. The companies agreed with the European competition authority on the early termination of a contract between Fibria and rival Klabin for the supply of hardwood pulp as a condition for the transaction’s approval.

Management for Suzano said the combined net revenue of Suzano and Fibria as of Sept. 30 is estimate at 31.6 billion Brazilian reais ($8.2 billion), while combined EBITDA is at BRL 16.2 billion, with a margin of 51.2%. Pro forma net leverage of the company will be around 2.9x. “We believe results will be even better over the next quarters,” Suzano CEO Walter Schalka said during the call.

Executives added that the cash cost per ton is estimated at BRL 596 or $170 per ton, adding that cost conditions are yet to be improved as synergies of the companies combined will increase. Suzano and Fibria together could reach a production capacity of as much as 11 million tons.

In order to raise cash for the deal, earlier this month Suzano reopened its outstanding $500 million 7% senior bond due 2047 for an additional $500 million at a yield of 6.85%. Executives also mentioned a term loan of six years, plus resources from both companies that will guarantee the cash for the closure of the transaction.

Before Europe, the merger had been previously approved by other authorities in Brazil such as the antitrust authority CADE and port sector regulator Antaq, as well as antitrust go-aheads in the U.S.A., China, and Turkey.

Regarding the remedy imposed by European authorities, Suzano management said the contract with Klabin will be terminated in 2019, including a five month transition for Klabin to take over all negotiated volumes through Fibria. “This is a deal that would end in 2021, so we are anticipating it in two years,” Schalka said.

Officials also plan to have Suzano listed in the New York Stock Exchange Nyse, while the company will promote a slight change at its name, to Suzano Holdings, as it will adopt the logo of Fibria.

Management said they would provide more details about the the combination of business and tax issues after the closure of the transaction.
As for 2019 contracts, executives said they offered customers the option of keeping current prices for the next year. In addition, management said the company hedged a “relevant part” of its portfolio at a currency exchange rate of BRL 3.70 per dollar.

Regarding global markets, executives said the pulp market is at a good moment driven by a strong moment in demand by China, adding that the country consumes about 6 kilos of paper per inhabitant per year, while U.S. consumption is at 25 kilos, providing a good space for growth. Management said they expect an increase of 2% to 3% in the pulp market for the next years.