79CK Qnb Fin 24

RNS Number:1390T
Sappi Ld
18 March 2002

Sappi Limited

Press Release

Johannesburg, South Africa, 18 March 2002

Sappi to buy and rationalise Potlatch Corporation's coated fine paper business
for US$480-million

Sappi Limited, the world leader in coated fine paper, announced today that it
has reached an agreement to acquire Potlatch Corporation's coated fine paper
business and its Cloquet, Minnesota, USA, pulp and paper mill for
US$480-million in cash.  As part of the transaction, Potlatch will cease
production of coated paper at the 140,000 short ton per year Brainerd coated
paper mill and bear the related costs.  The acquisition is subject to
customary regulatory approvals.

Sappi expects the acquisition to create significant value for its
shareholders.  The transaction is immediately accretive to earnings even with
current weak market conditions.  By 2003, on an annualised basis, Sappi
expects earnings per share accretion of US$0.20, even with taking a
conservative view on the potential synergies.

Sappi Chairman, Eugene van As, said today that "the purchase provides a
compelling opportunity to advance both Sappi's strategic and financial
agendas.  The acquired businesses are an excellent fit with our existing
operations in North America and Europe.  A complementary product line and
customer base should allow Sappi to capture substantial synergies immediately.
The integration of the Potlatch assets and transfer of the business from the
Brainerd mill to our existing mills in North America and Europe will
materially strengthen the competitiveness and profitability of our entire
North American operations.  We are highly confident that the US$480-million
investment will quickly generate returns that significantly exceed our cost of
capital."

"We believe that the Cloquet pulp mill and coated paper assets have the
potential to generate world class returns.  The acquired assets are well
invested with a book value well in excess of the transaction value.  A new,
US$525-million state-of-the-art pulp mill with a design capacity of 450,000
short tons per year was commissioned in 2000 at the Cloquet site.  It is the
newest pulp mill in the USA.  We are confident that bringing Sappi's knowledge
of pulp manufacturing to this mill, which had initial start-up problems, will
result in improved performance.  Cloquet also has two paper machines and an
offline coater - the newest machine and coater installed in 1988 and 1989,
respectively.  This is one of the few machines in the USA that can produce
European style triple coated paper with minimal investment.  The Brainerd
facility, which was built in 1917, will cease coated paper production".

In 2001, the pulp and coated paper division of Potlatch had total annual net
sales of US$464-million on sales of 363,000 short tons, all of it coated
paper, and 147,000 tons of market pulp.  Because Sappi has the capacity to
supply the volume equivalent to Brainerd's output from its existing facilities
in the USA and elsewhere, it will be able to avoid the US$60-million a year of
overhead costs that were associated with operating the Brainerd facility.  In
addition to the Brainerd overhead costs, Sappi has identified a further
US$60-million of savings and synergies which will be achieved within 12
months.  These synergies consist of US$20-million of pulp efficiencies as well
as rationalization in logistics, procurement and other administrative
overheads of US$40-million.  In summary, the integration of Potlatch into the
Sappi system is expected to generate total annual pre-tax savings and
synergies of at least US$120-million at existing prices.  The total one-time
costs to achieve these savings and synergies are not expected to exceed
US$20-million.

Bill Sheffield, the CEO of Sappi's global Fine Paper division, said "the
purchase price represents an effective US$980 per annual metric ton for the
Cloquet facility, which is an attractive price for a modern unit and we get a
bonus of a 140,000 tons of additional business at no further cost."

Commenting on the transaction, Sappi Fine Paper North America CEO, Kathy
Walters, said today: "Potlatch produces excellent and well-known paper grades,
in particular McCoy and Vintage, and is well known in the American designer
and print community.  The brands complement Sappi's own brand mix.  The
combined operation will be better able to service our customers and will
increase Sappi's share of coated fine paper sales in the USA to 30%.  It re-
affirms Sappi's clear leadership position in this market segment."

Commenting on the financing of the transaction, Donald Wilson, Chief Financial
Officer of Sappi, said "the Group has existing financing facilities to cover
the transaction at very competitive interest rates and debt-to-total capital
will be approximately 44% immediately after the transaction which is within
the Group's target of 25% to 50% range.  In addition, because of the
accelerated use of accumulated losses in a European subsidiary through which
this transaction will be funded, the after-tax holding cost will be very low.
We do not expect this transaction to affect Sappi's BBB credit rating."

"The Cloquet site represents an important strategic move for Sappi.  Imported
coated sheets have seen rapid growth in recent years and now account for
nearly half of the sheet fed market in the USA.  American printers are
changing to European style double and triple coated sheets because of price
and performance.  These products are less costly to manufacture than the
traditional US grades, and also provide a superior surface," said Bill
Sheffield.

Sheffield continued "Sappi's Somerset and Belgrade ranges remain the
pre-eminent number three/four (3/4) grades, but we have been looking for a
facility to manufacture European style grades in America for some time.  To
date we supply these grades from our own European facilities.  With Cloquet we
will be able to convert the coater with minimal investment to make these
products in the short term in the USA."

Eugene van As today concluded by saying that the acquisition meets all of
Sappi's strategic and financial criteria.

"This deal meets all of our investment criteria.  It is accretive to earnings
immediately, the return exceeds our cost of capital, and the investment is
more earnings enhancing than buying back our own shares.  The site has
interesting long-term potential for growth including the capability to
accommodate a world class machine if and when the market demands it."

                                                                          ENDS

Forward looking statements
Certain statements in this release that are neither reported financial results
nor other historical information, are forward-looking statements, including
but not limited to statements that are predictions of or indicate future
earnings, savings, synergies, events, trends, plans or objectives.  Undue
reliance should not be placed on such statements because, by their nature,
they are subject to known and unknown risks and uncertainties and can be
affected by other factors, that could cause actual results and company plans
and objectives to differ materially from those expressed or implied in the
forward-looking statements (or from past results).  Such risks, uncertainties
and factors include, but are not limited to the highly cyclical nature of the
pulp and paper industry (and the factors that contribute to such cyclicality,
such as levels of demand, production capacity, production and pricing),
adverse changes in the markets for the group's products, consequences of
substantial leverage, changing regulatory requirements, unanticipated
production disruptions, economic and political conditions in international
markets, the impact of investments, acquisitions and dispositions (including
related financing), any delays, unexpected costs or other problems experienced
with integrating acquisitions and achieving expected savings and synergies and
currency fluctuations.  The company undertakes no obligation to publicly
update or revise any of these forward-looking statements, whether to reflect
new information or future events or circumstances or otherwise.

Note to Editors
Potlatch Corporation (USA) is an integrated forest products company with 1.5
million acres timberland in Idaho, Minnesota and Arkansas and a 17,000-acre
hybrid poplar plantation in north-eastern Oregon. Manufacturing operations in
Idaho, Nevada, Minnesota, Arkansas and Michigan produce lumber and panel
products, bleached pulp and coated printing papers, consumer tissue and
bleached paperboard.

Please visit: www.sappi.com or www.potlatch.com

For further information:

Andre Oberholzer
Corporate Affairs and Communication Manager
Sappi Limited
Tel +27 (0)11 407 8044
Fax +27 (0)11 403 8236
Mobile +27 (0)82 906 0638
Andre.Oberholzer@za.sappi.com

or

Stephanie Hall
Communications Manager
Sappi Fine Paper North America
Tel +1 617 368 6318
Fax +1 617 368 6530
Stephanie.Hall@na.sappi.com




                      This information is provided by RNS
            The company news service from the London Stock Exchange

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