Domtar CorporationUFS

Morningstar Rating

Stock Research and Analysis

by Joung Park

The addition of Weyerhaeuser's WY fine paper business in 2006 vaulted Domtar to the top of the North American uncoated freesheet production standings. However, the results of the acquisition have been mixed as the purchase saddled Domtar's balance sheet Read more

Bulls Say

With the merger, Domtar has become the largest producer of UFS paper in North America (overtaking International Paper IP to claim the top spot) and will realize greater economies of scale.

Domtar has a relatively favorable position on the North American production cost curve, operating several large-scale, low-cost mills in the Southeastern U.S.

The merger affords significant synergy opportunities. The management team from Weyerhaeuser's fine paper business has experience realizing attendant merger efficiencies. Read more

Bears Say

The paper industry is plagued by poor industry fundamentals. Despite recent consolidation trends, the threat of overcapacity remains and will make it challenging for any firm to generate returns in excess of its cost of capital over the long haul.

Domtar's profitability is wedded to commodity-price fluctuations. Boom times can go bust in relatively short order and give way to extended periods of loss-making.

Domtar lacks manufacturing facilities outside North America, where operating costs can be significantly lower. Read more

Strategy

Domtar aims to be the lowest-cost UFS producer in North America. In the near term, management's strategic objective is to garner maximum synergies from merging the operations of Weyerhaeuser's fine paper Read more

Management

John Williams replaced Raymond Royer as president and CEO in January 2009. He was also appointed to the board of directors. Although on paper Williams lacks experience in the uncoated freesheet paper business, he does have experience in the packaging Read more

Profile

Domtar is the leading producer of uncoated freesheet paper in North America and one of the largest manufacturers of market pulp. In addition to uncoated paper grades, Domtar Read more

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