• Compiled From Kyodo, Staff Reports

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Hokuetsu Paper Mills Ltd., the target of a hostile takeover bid by Oji Paper Co., said Monday it is considering providing printing paper to the Kye Sung Paper Co. group of South Korea under a business alliance.

Hokuetsu has been holding talks with Kye Sung since April on a tieup that would include Hokuetsu providing printing paper under the Kye Sung brand, but nothing concrete has been decided, Hokuetsu said in a statement.

The envisioned tieup would help Hokuetsu raise its corporate value and is likely to give it a further edge in fending off the unwanted buyout attempt.

Oji, Japan’s largest papermaker, wants to close its old production facilities by making good use of Hokuetsu’s key plant in Niigata Prefecture, if its ongoing tender offer for a majority stake in its smaller rival is successful.

But the tender offer, which runs until Sept. 4, is very likely to end up a failure as a large majority of Hokuetsu shareholders have voiced their opposition to Oji’s proposals.

Over the weekend, it was reported that Oji was giving up on the takeover attempt.

The tender offer bid came a week after Hokuetsu rejected a first merger proposal from Oji and said it would instead go ahead with a previously planned tieup with Mitsubishi Corp.

In addition to Mitsubishi, which holds a 24.4 percent stake and Nippon Paper Group Inc., which has a 8.9 percent stake, Niigata Prefecture-based Hokuetsu Bank and Daishi Bank, both with 2 percent stakes, have recently said they will not back Oji’s buyout attempt.

As for the tieup with the major South Korean papermaker, a Hokuetsu executive said the company plans to take advantage of the Niigata factory, which will be equipped with some of the most advanced facilities in Japan by the end of 2008 with an annual output capacity of 350,000 tons.

Hokuetsu will use the new facilities to produce printing paper for magazines and fliers. As the domestic paper market is showing signs of leveling off, Hokuetsu initially planned not to put the facilities into full production until fiscal 2011.

But with the possible tieup with the South Korean papermaker, Hokuetsu will be able to make extensive use of the new facilities.

If the tieup comes to fruition, the Kye Sung group is expected to dispose of its old facilities.

Hokuetsu will consider similar business tieups with other foreign papermakers, the executive said.

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