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Hokuetsu Paper Mills Ltd. and Nippon Paper Group Inc. said Tuesday they have agreed to begin discussing a business tieup that would include mutual supply of printing paper under each other’s brands.

The two companies said they will try to sign an agreement on the tieup by Nov. 30.

The announcement follows Hokuetsu President Masaaki Miwa’s comments Monday that the companies will work out details of the alliance “by the end of this fiscal year.”

Nippon Paper and trading house Mitsubishi Corp. helped Hokuetsu fend off a hostile takeover last month from Oji Paper Co., Japan’s largest paper company, by acquiring a major stake in Hokuetsu.

“We will enhance our corporate value” in cooperation with Nippon Paper, Japan’s second-largest paper maker, and Mitsubishi, Miwa said in an interview Monday.

Among the moves expected under the tieup, Nippon Paper and Hokuetsu will mutually supply paper on an original equipment manufacturing basis when their state-of-the-art plants go onstream, Miwa said. Nippon Paper’s plant is scheduled to become operational in Ishinomaki, Miyagi Prefecture, in November 2007, while Hokuetsu’s will start operations in Niigata at the end of 2008.

The tieup will help reduce distribution costs by enabling shipments to be made from plants closer to the markets, he added.

In addition, the alliance will likely involve Hokuetsu outsourcing production to Nippon Paper, joint procurement of materials, and exchange of production technologies.

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