Georgia-Pacific and Fort James Agree to Merge

The makers of some of the best-known toilet paper brands are agreeing to merge.

Georgia-Pacific Corporation has agreed to acquire Deerfield-based Fort James Corporation in an $11 billion deal.

The acquisition would include the assumption of about $3.5 billion of Fort James debt. Both companies’ boards have signed a definitive merger agreement and expect the transaction to close in the fourth quarter.

Atlanta-based Georgia-Pacific makes and distributes paper and building products. Its brands include Angel Soft, Sparkle, Coronet and M-D tissue products and Pacific Garden antibacterial hand soap.

Fort James’ products include bathroom and facial tissue, paper towels, napkins, cups, cutlery and more. Its brands include Quilted Northern, Soft ‘N Gentle, Brawny, Mardi Gras, So-Dri, Vanity Fair, and Dixie.

Creates Largest Tissue Manufacturer

The move, which has already been approved by the boards of both companies, will make Georgia-Pacific the world’s leading manufacturer of tissue products and will immediately add to earnings excluding goodwill, it said.

It added the deal would boost earnings on a reported basis, or earnings after goodwill, beginning in the second full-year after the transaction.

The deal calls for Georgia-Pacific to pay $29.60 in cash plus 0.2644 share of its stock for each Fort James share.

The maximum value that Fort James shareholders can receive is $40 per share, implying a premium as high as 63 percent above Fort James’ closing price of 24-9/16 on the New York Stock Exchange Friday.

Georgia-Pacific added that it plans to sell about 250,000 tons of tissue manufacturing capacity and divest other, unspecified, non-strategic businesses.

Combined revenues of the two companies, whose brand names will include Quilted Northern toilet paper and Brawny paper towels, exceeded $24.8 billion last year, Georgia-Pacific said.

No Regulatory Obstacles Expected

“Today’s actions and future divestitures are indicative of the major transformation under way at our company,” Georgia-Pacific Chairman and Chief Executive A.D. Correll said in a statement. “Our strategy is to transform Georgia-Pacific by transforming our portfolio of assets.

The acquisition will unlock more than $500 million in annual pre-tax synergies, Georgia-Pacific said, referring to operating efficiencies and improved productivity that will result from the deal. No job cuts were mentioned, however.

The deal will bring Georgia-Pacific closer to consumers and improve the Atlanta-based company’s earnings predictability, Georgia-Pacific said.

On the earnings front, Georgia-Pacific released its latest quarterly results separately on Monday. The company reported second quarter net income of $206 million, or $1.20 per diluted share, on sales of $5.45 billion. That compared with a profit of $212 million, or $1.20 per share, in the same period last year, when sales came in at $3.80 billion.

As for the executive oversight of the newly combined company, Georgia-Pacific’s present 12-member board of directors will be supplemented with three new directors designated from Fort James’ existing board, Georgia-Pacific said.

Georgia-Pacific added that it does not anticipate any regulatory obstacles that would prevent completion of the deal.