Notes from PriceWaterhouseCoopers Meeting of Paper Industry

Global forest products sector has strong Merger and Acquisitions year in 2006; there were over 280 mergers and acquisitions (M&A) with a value of nearly US$26 billion in the global forest, paper and fiber-based packaging sector, according to PricewaterhouseCoopers (PwC).

North America remained at the forefront of forest, paper and packaging M&A activity, with a two-thirds share of deal values in 2006. The second largest forest products company deal in 2006 occurred in Canada - Domtar Inc’s acquisition of Weyerhaeuser Company’s fine paper business and related assets for US$ 3.3 billion. Cascades Inc acquisition of 50% of Norampac Inc. for US$476 million and West Fraser Timber Co. Ltd purchase of 13 lumber mills from International Paper Co. for US$325 million ranked among the ten largest deals in North America.

The average deal size in 2006 increased to US$169 million from US$90 million in 2003, a good indicator of growing and recovering deal confidence over the four year period. The momentum behind deal activity looks set to
continue with opportunities still existing for consolidation as the transformation of traditional value chains in forest, paper and packaging continues.

The global forest, paper and packaging industry continued to face challenges in 2006 foreign exchange fluctuations, increased energy and transportation costs, waning demand and the impact of emerging markets on
global competition, said Craig Campbell, partner, PwC Global Forest, Paper and Packaging practice, based in Vancouver. In spite of these challenges, M&A activity has risen, with companies selling off underperforming and non-core businesses. The leading players are also seeking to extend there reach globally.

Campbell added that the forest, paper and packaging industry remains fragmented regionally and globally. This fragmentation is expected to drive more M&A activity going forward.
Highlights of recent deal activity include:
> Deals involving pulp and paper production dominate, having risen a total of over four-fold from US$3.2billion in 2003 to US$13.6billion in 2006. Forestland and forestry was the second most active sector, with deals totaling US$ 15.7billion in the last four years.
> Emerging markets are active with M&A transactions in the sector. Deals have recently taken place in Brazil, China, India, Malaysia, Mexico, and Poland and Russia.
> The top dealmaker in 2006 was International Paper, which raised US$11 billion in disposals and was behind 40% of the global deal flow, featuring in five of the ten biggest deals.
> Financial investors such as private equity investors and Timber Investment Management Organizations (TIMO) have made their mark on the sector and were involved in almost 50%, or US$12 billion, of deals in 2006.

A separate, recent PwC survey of forest, paper and packaging CEOs found that M&A activity in the global sector appears set to continue, with 27% planning a cross-border merger or acquisition. The fundamentals for deal activity in the forestry, paper and packaging industry remain strong, with a sound economic environment, low interest rates and plenty of liquidity? most notably with private equity. Almost US$9 billion of deals were reported in the first three months of this year, including Brookfield Asset Management’s acquisition of Longview Fiber and the proposed Bowater - Abitibi Consolidated deal.

North America will likely continue as a center of M&A activity in the forest products sector, where private equity is expected to remain a pivotal player. Private equity and other non-traditional investors will continue to be active dealmakers as the global sector restructures. Although unlikely to be a driver of major deal flow in the short-term, the moves towards greater
renewable energy (including biofuels) from woody biomass, will drive future deals. Co-ventures between forest and paper companies and both new and established energy players is also expected.