Stora, Holmen deny newsprint tie-up talks report-UPDATE 4

Trade the News

Thursday September 02, 2010 11:11:14 AM GMT

* Stora, Norske Skog, Holmen eye newsprint venture - paper

* Stora, Holmen deny talks; Norske Skog declines to comment

* Norske Skog up 8.7 percent, Stora up 3.1 percent

* Holmen up 4 percent

(Adds Holmen reaction, updates shares)

By Brett Young and Terhi Kinnunen

HELSINKI, Sept 2 (Reuters) - Papermakers Stora Enso and Holmen failed to dampen talk of an industry shake-up, despite denying they were in talks with Norske Skog to pool newsprint production.

Papermakers' shares shot up on Thursday on renewed talk about consolidation in an industry that has struggled to emerge from a near decade-long slump caused by weak demand and overcapacity.

The sector's problems were exacerbated by last year's recession which hammered advertising spending.

Norwegian group Norske Skog declined to comment on an unsourced report by Finnish newspaper Helsingin Sanomat, that said it was eyeing a venture with its rivals to pool newsprint production, as a way to boost profit and prices.

Norske Skog spokesman Carsten Dybevig told Reuters the company aimed to become as productive as we can by operating the units with the lowest costs. "Big units with low costs, that's the only way to survive in this industry," he said.

But Stora Enso's and Holmen's made outright denials.

"Stora Enso confirms that there are no discussions ongoing concerning the matter mentioned in Helsingin Sanomat," it said.

"No discussions are under what that correspond to the information published," Holmen said in a separate statement.

Stora Enso is the largest of the three and number one in Europe, with an annual paper and board capacity of 12.7 million tonnes in 2009. Norske Skog's annual capacity was 4.5 million tonnes and Holmen's 2.5 million tonnes.

Leading Nordic bourses suspended trading in the three stocks after Norske Skog gained 19 percent, Holmen 6 percent and Finland's Stora Enso 4.6 percent.

Norske Skog shares were up 8.7 percent by 1405 GMT after trading resumed, Stora was up 3.1 percent and Holmen up 4 percent.

SMALL CHANCE?

Analysts welcomed the idea of joining the newsprint businesses, but noted competition rules might make it difficult.

"The proposed solution would be a good one for the companies. They would have half the European market and therefore get a completely different pricing power," Fondsfinans analyst Per Haagensen said.

"There are elements that make it not ridiculous but there will be competition issues. So I don't think you can say this is a done deal at all," said one analyst, who declined to be named.

Others were more cautious. "Maybe going public killed the deal or maybe it was just a rumour," said Ohman analyst Timo Jaakkola.

One industry source, speaking on condition of anonymity, said not too much should be read into the newspaper report. "Every single combination always has a small chance of happening, but there is nothing substantial behind this story."

All three companies made first-half losses in their newsprint businesses, reflecting the tough market conditions.

Norske Skog's newsprint revenues fell to 5.5 billion Norwegian crowns ($886 million) in the first half from 6.8 billion a year ago. The business's loss after depreciation widened to 282 million from a loss of 123 million.

Stora's newsprint unit swung to an operating loss for the half of 8.2 million euros ($10.5 million) from a profit of 52.6 million a year ago. Sales fell 4 percent to 613 million.

Holmen's paper unit notched up an operating loss of 348 million Swedish crowns ($48 million) for January-June versus a profit of 267 million a year ago. Sales skidded 15 percent to 3.9 billion crowns. (Additional reporting by Terje Solsvik in Oslo, with Simon Johnson and Sandra Jansson in Stockholm; Editing by Hans Peters, Michael Shields and Erica Billingham) ($1 = 0.7812 euro = 7.297 Swedish crowns = 6.211 Norwegian crowns)

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