A privately held pulp and paper maker controlled by a member of an Indonesian business dynasty is tightening its grip on Canada’s forest sector with a flurry of takeovers, prompting environmental groups to raise concerns about the company’s influence and accountability.
Paper Excellence Group is owned by Jackson Widjaja, of the billionaire Widjaja family, and headquartered in Richmond, B.C. The company launched with a single pulp mill in Saskatchewan 15 years ago and slowly expanded through smaller acquisitions – until late 2019, when it closed the purchase of B.C.’s Catalyst Paper Corp. and its three mills.
Since then, its appetite has been ravenous. The company swallowed Montreal-based Domtar Corp. for US$2.8-billion in November last year. Just months later, it took the industry by surprise with the proposed takeover of Resolute Forest Products Inc. RFP-T for US$2.7-billion. That deal is still being examined by the Competition Bureau after Resolute shareholders gave their approval.
If the sale goes through, it would cap an unprecedented, rapid-fire expansion for a forestry products company operating in Canada – one that’s generating mixed feelings across the country. Many industry consultants and analysts give Paper Excellence credit for investing in assets no one else wanted and keeping things running in mills that rival producers might have given up on years ago. Others are sounding the alarm.
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With Domtar, Paper Excellence is already the biggest producer of pulp and paper in Canada, holding 12 per cent of the industry’s 20.7 million tonnes of annual capacity, according to the latest data from market research group Fisher International. Pulp is used to make things like packaging, toilet paper and diapers. Taking over Resolute, the No. 2 player, would push that share up to 21 per cent, not including any divestitures, Fisher data show.
Resolute is the biggest producer of newsprint and uncoated mechanical paper in North America, the kind used for magazines and advertising catalogues. It also makes tissue and has major lumber assets. Domtar is biggest in uncoated free sheet paper on the continent, the kind used in office paper.
“This is huge,” said Kevin Mason, managing director of ERA Forest Products Research.
“You take Paper Excellence with their existing pulp assets and layer that with the Resolute and Domtar stuff and yeah, they are a new giant,” Mr. Mason said. “A lot of people in the industry are unsure how it’s going to deal in its new position. That creates uncertainty definitely when you’re not too sure what the new owner is going to do and how they’re going to act.”
Conservation non-profit Canopy Planet says it’s perilous to give one company that much power in an industry so critical to the fight against climate change, especially one it says has a spotty track record. Greenpeace wonders just how deep the company’s links to the Widjaja family’s other holdings run, specifically conglomerate Sinar Mas and its subsidiary Asia Pulp and Paper (APP).
Greenpeace characterizes APP as a poster boy for bad behaviour, saying it cleared two million hectares of rainforest in Indonesia that destroyed critical habitat for orangutans, tigers and elephants. It also says its land-use practices have been linked to catastrophic fires in 2015 and again in 2019, and that it has engaged in conflicts with more than 100 local communities in Sumatra.
Paper Excellence says that, apart from the fact its owner is a member of the Widjaja family, there is no relationship with Sinar Mas or APP. And although it would become Canada’s biggest pulp and paper company with the Resolute takeover, it rejects suggestions it would dominate any one market segment.
“We’re not a behemoth,” said Patrick Loulou, the company’s vice-chairman and chief strategy officer. “We’re really a diversified forestry pulp and paper company. And that’s been the strategy.”
Deals such as those for Catalyst, Domtar and Resolute demonstrate that the Canadian forest products industry and the softwood it is known for remain an attractive target for well-capitalized investors. The sector’s output still ranks among the country’s top-five exports. But the deals also lay bare the pitfalls of so many assets being held by so few.
After years of consolidation and bankruptcies that claimed iconic names such as Abitibi-Price and MacMillan Bloedel, a sector that was once a pillar of the Canadian economy now appears to be heading toward a final shakeout in which the remaining players have an outsized presence. In another example of recent consolidation, West Fraser Timber Co. Ltd. last year completed a $4-billion takeover of Norbord Inc., which produces oriented strand board used in construction.
Consider the numbers. Paper Excellence currently controls pulp and paper manufacturing operations that yield almost 10.4 million tonnes annually, with a work force of more than 14,000 at some 40 locations across the Americas and Europe. In Canada, it has 10 mills, including those of Domtar, and it’s largely a pulp and paper company.
Adding Resolute would add sawmills and woodland assets to the mix. If that deal is completed as expected in the first half of next year, Paper Excellence would gain another two dozen operations in Canada, including more pulp and paper mills, several facilities where construction-grade lumber and other wood products are made, as well as a clutch of power-generation facilities. Resolute manages more than 20 million hectares of forests, most of them in Ontario and Quebec.
Critics say that should give both regulators and governments pause. Paper Excellence also owns two pulp facilities in France and is in the process of acquiring the Eldorado Brasil Celulose pulp mill in Brazil, one of the country’s biggest. The company has announced its intention to sell Resolute’s Thunder Bay mill to win approval for the deal, and Domtar’s Dryden and Espanola operations in Ontario will also be divested.
“To have so much of Canada’s forests concentrated under the decision-making influence of just one company is just fraught with potential danger,” said Nicole Rycroft, the head of Canopy Planet.
Ms. Rycroft says that, while the federal government and the Competition Bureau are flagging concerns about Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. and China’s dominance of the market for critical minerals, Paper Excellence’s bid to control more of Canada’s forests also warrants serious scrutiny. She says the company’s ownership structure has become less transparent over the years, which adds to the need to shed more light on who’s pulling the strings and who is accountable for the company’s actions.
Jackson Widjaja, who lives in Asia, started investing in Canada more than a decade ago as a way to access its wood fibre supply. He wanted to feed a flourishing market for pulp and paper in Asia, according to forestry consultant Peter Woodbridge, who once advised the company.
Mr. Loulou describes Mr. Widjaja as a deeply private man with a long-term vision – a leader with an eye for seeing promise where others see failure. “If you’re a big company with [multiple mills] and you have a bit of a wounded duck on the side there, you don’t really invest in it. You just let it fail,” Mr. Loulou said. Mr. Widjaja has a different approach. “He just goes, ‘No, wait a minute. If you do A, B and C, we could actually extend the life another five years, another 10 years.’ And so that’s what he’s done.”
Questions about Paper Excellence’s ownership and intentions in Canada have come up almost from the moment it appeared on people’s radar. News stories in The Globe and Mail and elsewhere have reported that APP actually purchased Paper Excellence’s Meadow Lake mill, its first asset in Canada.
When Paper Excellence was bidding for a paper mill in Port Hawkesbury, N.S., in 2011, APP Canada acknowledged in a Globe report that it was affiliated with Paper Excellence but insisted the operations were independent. At the time, Ms. Rycroft said she was concerned the companies were using Canada to rehabilitate the public image of APP and Sinar Mas, which she said have a “horrendous track record” in their home market.
In a research paper on Paper Excellence’s ownership published in October, Greenpeace, the Environmental Paper Network and two other groups present a body of evidence that includes family ties, overlapping management and lobbyist filings indicating that Sinar Mas Group controls Paper Excellence and that Paper Excellence and APP can be considered sister companies.
The groups say Paper Excellence’s corporate structure is an extensive network of entities registered in offshore jurisdictions characterized by high levels of corporate secrecy. Meanwhile, property titles for the Catalyst mills that Paper Excellence bought in 2019 show the mortgagee is Bank Negara Indonesia, a state-owned bank, according to Greenpeace, adding that two APP mills also held debt from the same lender at the end of 2021.
“The issue here is that this company has some opaque ownership,” said Priyanka Vittal, a Greenpeace lawyer. “That’s a concern because it raises the question of what their practices are going to be. … Are they going to be part of the solution toward protecting biodiversity and wildlife and species at risk? Or are they going to be part of the problem?”
There’s no mystery, Mr. Loulou said. Mr. Widjaja is the owner of Paper Excellence and there are no links between it and Sinar Mas and APP. “We don’t collaborate. We don’t do anything. They’re complete strangers, as far as I’m concerned.” As for Paper Excellence’s corporate structure, he said: “I don’t see it as being out of the ordinary.”
When Canada’s Competition Bureau approved its takeover of Domtar in December, 2021, the regulator concluded that the deal would likely lessen competition in the purchase of wood fibre in B.C.’s Southern Interior and coastal regions, so it demanded that Paper Excellence sell its pulp mill in Kamloops. The bureau also analyzed the competitive effects on the sale of pulp and paper, and concluded that the two companies were not particularly close competitors and that rivals could serve various regions.
In deciding whether Paper Excellence would gain excessive control of the pulp and paper market with its purchase of Domtar, the bureau said it also “extensively considered” a possible relationship between Paper Excellence and APP, a major producer of pulp and paper and one of the biggest consumers of northern bleached softwood kraft pulp in the world.
The regulator concluded: “While a number of market participants alleged that Paper Excellence’s relationship with APP would incentivize it to act in an anti-competitive manner, even when such actions would not be profitable for a fully independent entity, the bureau determined that there is insufficient evidence to conclude that the proposed transaction would likely substantially lessen or prevent competition in the sale of pulp and/or paper in Canada, even under a scenario where a significant interest is found to exist.”
There are fresh competition worries with the Resolute transaction, particularly in newsprint, where Resolute is North America’s biggest supplier. Paper Excellence is said to be seeking price increases of as much as 30 per cent from customers such as commercial printer Transcontinental Inc. because it can command such prices in overseas markets.
That is forcing printers to scramble for alternatives and could even steer newspapers into financial difficulty if they’re forced to pay the steep price hikes. Officials with Montreal-based Transcontinental declined to comment.
Paper Excellence will stay committed to supplying the Canadian market with newsprint for as long as there are buyers, Mr. Loulou said. He acknowledged that newsprint prices are higher but said white paper prices have climbed as well – a function of higher input costs for energy, transportation and chemicals. “It’s not like we’re somehow pocketing all of that with just bigger profits,” he said. “Our costs keep rising, and so we’re just adjusting with the rest of the market.”
Frank Dottori, the founder of Tembec Inc. and a renowned figure in the industry, says he sees Paper Excellence as the Canadian arm of APP. He said the insistence that the two are entirely separate is just “good politics” and “strategic because people are worried about the elephant in the room.”
“I think they’ve been pretty solid investors” in Canada, Mr. Dottori said of both companies. “So I think it’s not bad for the Canadian industry and Canadian employees. But you know, people say money has no nationality. And that’s not true.”
One big risk is that the Canadian facilities will rank lower than those outside the country on Paper Excellence’s list of operations when it comes to weighing closures, Mr. Dottori said. “That’s what Canadians should worry about,” he said. “You become … the finger on the hand. So if they have to amputate, it’s easier to do.”
When Paper Excellence bought the three mill sites from struggling Catalyst in 2019, B.C. premier John Horgan hailed the company for stepping up with investment when pensions and jobs were at risk. Two years later, operations at one of those mills, Crofton, have been scaled back. Another, Powell River, has closed entirely. Paper Excellence’s Northern Pulp mill in Nova Scotia filed for bankruptcy protection in 2020, and the company sued the province for $450-million in damages in a dispute over the mill’s effluent treatment facility.
Whether other companies would have acted any differently is anyone’s guess.
Don Roberts is the chief executive of Nawitka Capital Advisors, an investment banking boutique and strategic advisory firm that serves organizations in the forest products, renewable energy and clean technology industries. He says that even if Paper Excellence is essentially a foreign company, the important thing is that it has the financial means and will to invest in Canada.
Mr. Roberts says that if we think about where the Canadian forest industry should be in 10 years and which players are likely to get us there, it’s not clear that Paper Excellence’s expansion is detrimental to that effort. The sector needs to push into renewable fuels, chemicals and advanced solid materials for use in construction and other areas, he says, and companies such as Paper Excellence could drive that push. They’ve already recruited people with this focus.
What you want is a strong company with a solid balance sheet and the will to grow, he says. “The forest sector as we’re seeing it now is undergoing a fundamental transformation. And so the question is not just do you have the money to do it. It’s do you have the mindset to do it.”