Feb. 8 (Bloomberg) -- Canadian pulp and paper makers such as Abitibi-Consolidated Inc. are too small to compete globally and must merge with local rivals to avoid becoming takeover targets, said Norske Skog Canada Ltd. Chief Executive Officer Russell Horner.
``The ideal situation for Canada is to have at least one, maybe two global-sized players that can access capital markets,'' Horner said after an industry panel in Montreal. ``Otherwise we are going to find that Canadian companies are increasingly owned by operators from other countries.''
For consolidation to happen in Canada, competition authorities need to make it easier for pulp and paper companies to merge, Horner said. Merger reviews by the country's Competition Bureau can take at least six months and carry ``significant'' costs, he said.
``The problem is the law,'' Horner said. ``Government policy restricts the ability of companies to consolidate. We need our government to change Canadian law to allow market dynamics rather than government policy to determine industry structure.''
Even Abitibi, the world's largest newsprint maker, needs to get bigger, he said. Montreal-based Abitibi has a market value of C$3.2 billion ($2.5 billion), about one-fifth the size of Finland's Stora Enso Oyj, the world's largest paper maker.
``We in Canada look upon Abitibi as being a giant, but it's actually quite small by global standards,'' Horner said. ``We need something that has some weight.''
Vancouver-based Norske Skog Canada, the country's sixth- biggest forest products maker by market capitalization, is worth about C$794 million. Norway's Norske Skogindustrier ASA owns about 29 percent of Norske Skog Canada, while the remainder is widely held.
Close Plants
Horner and other participants in today's discussion suggested Canada's forest-products industry will continue to shut inefficient mills to cut costs.
``There is consolidation coming in the industry,'' Tembec Inc. CEO Frank Dottori said. ``We are going to rationalize between now and May 1.''
Horner thinks 15 to 20 ``significant'' production units could be shut across Canada in the next decade. Each unit employs 200 to 300 people, he said, though other workers would be hired as companies invest in new technology in the remaining facilities.
Horner said Canada's forest-products companies need to invest C$20 billion to C$50 billion in their facilities over the next decade.
``I see fewer mills operating with much higher energy efficiency producing higher-value products,'' he said. ``It's not a pretty picture but it is the basis we need to build our future platform. It's inevitable.''
