Norske Skog: farewell Korea!

Norske Skog is selling its two South Korean newsprint mills to Morgan Stanley Private Equity Asia and Shinhan Private Equity. The deal could well be completed just in time for 7 August 2008, when Norske Skog discloses its results for the first half of 2008. One of the mills was acquired in 1998, the other was partly acquired the following year and fully consolidated since 2005. The Korean disposal will generate $830 million proceeds for Norske Skog and will reduce the group's debt by about 25%. The mills have a 1-million-tonne newsprint paper production capacity, that is about 2/3 of Norske Skog's Asian newsprint capacity or just under 1/4 of the entire group's newsprint capacity. No material disposal gain or loss will result. In the third quarter of 2006, Norsk Skog had recorded a provision of NOK 1 billion for a 1,000-headcount reduction and a 180,000-tonne capacity reduction in Korea.

In January 2008, the largest shareholder of Norske Skog was Unionen, with almost 6% of the capital. Owned by activist shareholders, Unionen then made a rather protectionist call that Norske Skog should sell assets outside Norway to keep its home-based mills afloat, for instance by splitting the group into two geographical poles. This was a strong objection of the pro-Asian strategy that had been pursued since Norske Skog took minority stakes in what are now majority- or fully-owned Norske Skog Asian operations.

For now, the group is holding on to its smaller Chinese assets, and management probably still sticks to its belief that long-term prospects there are "bright", despite the current over-capacity situation.