The new company is expected to be the largest fine paper company in North America. Fine paper is typically used for books, brochures and everyday office work.
The company will have 14,000 employees and will be led by Raymond Royer, Domtar's president and chief executive officer. But Weyerhaeuser shareholders will get a 55 percent stake in the new company and Weyerhaeuser will nominate a majority of its 13-member board. Harold MacKay, an adviser to Weyerhaeuser's board, will chair the new company's board.
Affected Weyerhaeuser facilities in North Carolina include a paper mill in Plymouth and a converting center in Plymouth.
The company’s operations headquarters will be in Fort Mill, S.C.
"The new Domtar is in a better position to compete than either company could on its own," Steven R. Rogel, Weyerhaeuser's chairman, president and CEO, said in a conference call with analysts.
The two executives said the deal is expected to generate about $200 million in annual "synergies" _ cost savings and extra revenue _ within the next two years, because the combined operation will be able to save money on things like transportation, logistics and purchasing.
Weyerhaeuser shares rose $1.59, or 2.7 percent, to $61.62 in afternoon trading on the New York Stock Exchange. Its shares have traded in a 52-week range of $54.25 to $75.50.
In an interview with The Associated Press, Royer said he did not expect any job cuts or mill closures as a result of the transaction. Rogel said he expected about 5,300 Weyerhaeuser employees will be moved over to the new company.
Weyerhaeuser said it will distribute ownership of the fine paper business and related assets to its shareholders in either a spin-off or split-off transaction before the combination of the businesses.
Under terms of the agreement, Weyerhaeuser will receive a $1.35 billion cash payment from Domtar. Weyerhaeuser shareholders will receive 55 percent of the new company's stock. Weyerhaeuser said that stake was worth nearly $2 billion at Domtar's closing price on Tuesday. Domtar stockholders will own a 45 percent stake in the new company.
Rogel said Weyerhaeuser chose to structure the deal in a way that also gives shareholders ownership in part because it is expected to be tax-free, while an all-cash deal would have been taxable.
"This particular transaction is by far the best that we could do to deliver value to our shareholders," Rogel said.
The management team of the new company will include executives from Weyerhaeuser paper operations and Domtar. Marvin Cooper, currently Weyerhaeuser senior vice president of cellulose fiber and white paper, containerboard manufacturing and engineering, will be chief operating officer of the new company while Daniel Buron, Domtar's chief financial officer, will be its CFO.
Weyerhaeuser manufacturing assets included in the combination include eight paper mills and associated pulp mills; 14 converting centers; a market pulp mill in British Columbia; a coated groundwood mill in Columbus, Miss.; and two softwood lumber mills.
The new company will operate a head office in Montreal, while operational headquarters will be located in Fort Mill, S.C. Domtar will nominate six of the new board's members while Weyerhaeuser nominates seven.
The new company is expected to be listed on the New York Stock Exchange and Toronto Stock Exchange, Royer said.
"With this transaction, we are transforming Domtar into one of the world's leading paper companies, creating a strong company for shareholders and presenting new opportunities for employees and customers," Royer said.
The deal has been approved by both companies' boards, and is expected to close early next year.
The transaction is subject to review by antitrust agencies and securities regulators in the United States and Canada and a favorable tax ruling from the U.S. Internal Revenue Service, among other conditions. It also must be approved by Domtar shareholders.
Weyerhaeuser had said in April that it might sell its fine paper business, which produces paper for commercial printing and publishing and business uses, as part of ongoing efforts to improve Weyerhaeuser's operations. The company took a $746 million one-time charge in its fiscal first quarter to account for the possible sale.
Domtar, with 8,500 employees, is currently the third-largest producer of uncoated freesheet paper in North America. It is also a leading manufacturer of business papers, commercial printing and publication papers, and technical and specialty papers.
Domtar manages forestland in Canada and the United States, and produces lumber and other wood products. The company also has a 50 percent investment in Norampac Inc., the largest Canadian producer of containerboard.
Weyerhaeuser, based in Federal Way, earned $733 million on sales of $22.6 billion in 2005.
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