Containerboard Industry Perspective 2nd Quarter 2014

Caraustar to acquire Newark Group

By Jesse Marzouk

Containerboard Perspectives Graph Q2 2014The second quarter of 2014 was characterized by little movement in prices in either the containerboard or paperboard markets. Containerboard prices largely held, although some weakness continued in recycled grades as the full impact of nearly 1 million tons of additional recycled containerboard capacity added over the last year is being felt. On the paperboard side, uncoated recycled board (URB) pricing inched up $10 per ton and is up approximately $35 per ton over the last year

In industry news, Caraustar is proposing to buy Newark Group, which would create the second largest URB producer in North America with approximately 33% market share. The largest player is Sonoco Products Company, who controls approximately 35% of industry capacity. The proposed acquisition of Newark by Caraustar would create an industry with nearly 70% of capacity controlled by two firms.

Given the Department of Justice’s (DOJ) recent decision to strike down the acquisition of Ainsworth Engineered by Louisiana Pacific (LP) in the oriented strand board (OSB) market, does a similar fate await the Caraustar/Newark deal? The DOJ cited the likelihood of price increases in the OSB market as a reason for not allowing the LP/ Ainsworth combination. Price increases for URB would likely follow the combination of Caraustar and Newark.

The LP/Ainsworth combination would have created a firm with a 32% market share in OSB, but there would have been no other single large player like Sonoco. The OSB market still would have been less concentrated with more firms controlling more idled capacity than URB. Or does the DOJ give approval of the Caraustar/ Newark combination because of the general lack of demand in the URB market? Did the DOJ face any political pressure to not allow the LP/Ainsworth merger because it is in the still relatively “fragile” housing industry and is more visible to consumers? These questions are expected to be answered over the next few months as the DOJ makes its decision on the Caraustar/ Newark merger in the URB space and the Verso/NewPage merger in the coated paper market industry.

Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.