BOWATER INCORPORATED
Filed
by Bowater Incorporated
Commission File No. 1-8712
Pursuant to
Rule 425 under the Securities Act of 1933
And Deemed Filed
Pursuant to Rule 14a-12
Under the Securities Exchange Act of
1934
Subject Company: Bowater Incorporated
Commission File
No. 1-8712
ABITIBI/BOWATER
Merger Announcement Webcast Transcript
January 29, 2007
Corporate Speakers
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Frank Alessi
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Abitibi-Consolidated Inc.
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Director IR |
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John Weaver
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Abitibi-Consolidated Inc.
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President, CEO |
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David Paterson
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Bowater Incorporated
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President, CEO |
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Bill Harvey
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Bowater
Incorporated
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CFO |
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Pierre Rougeau
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Abitibi-Consolidated Inc.
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CFO |
Participants
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Chip Dillon
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Citigroup
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Analyst |
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Joe Stivaletti
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Goldman Sachs
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Analyst |
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Edings Thibault
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Morgan Stanley
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Analyst |
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Rich Schneider
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UBS
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Analyst |
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Mark Wilde
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Deutsche Bank Securities
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Analyst |
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Don MacDougall
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Adage Capital
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Analyst |
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Bill Hoffman
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UBS
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Analyst |
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Kevin Cohen
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Banc of America
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Analyst |
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Paul Quinn
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Salman Partners
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Analyst |
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Sean Steuart
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TD Newcrest
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Analyst |
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Steve Chercover
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D.A. Davidson & Company
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Analyst |
PRESENTATION
Operator: Good day, ladies and gentlemen, and welcome to the Merger Announcement Webcast. My name
is Carissa, and I will be your coordinator for today.
[OPERATOR INSTRUCTIONS]
I would now like to turn the presentation over to your host for todays call, Mr. Frank Alessi.
Please proceed, sir.
Frank Alessi: Thank you, Carissa. Good morning, everyone. Before we get started, the press
release and presentation for todays call are available on both companies websites. And the
transaction websites is also available, which would be www.abitibibowater.com. We have scheduled
this call for one hour, and there will be a question-and-answer session at the end. We ask that
each person ask one question with one follow-up. A separate press conference has been scheduled
for 11 oclock, and details have been posted on the appropriate websites. This call will be
available for replay, and will be archived on the three websites later today.
In order to help you understand the transaction that we are announcing today, we will be making
some forward-looking statements during this call including statements regarding advance or
developments that we believe or anticipate will or may occur in the future. This presentation and
our discussion today will include statements that do not directly or exclusively relate to
historical facts. Such statements are forward-looking statements within the meaning of the
Securities Laws, and include statements regarding the benefits of the proposed combination,
integration plans, expected synergies, anticipated future financial operating performances and
results and the like.
These statements are based on current expectations of management of Abitibi and Bowater. There are
a number of risks and uncertainties that would cause actual results to differ materially from the
forward-looking statements. These factors are referred to in the written presentation, and there
are other factors that may affect the future results of Abitibi and Bowater, which are set forth in
their respective filings with the Securities and Exchange Commission. The written permission and
such filings are available at Abitibis and Bowaters websites and are filed with the SEC.
I will now turn the call over to Mr. John Weaver, President and CEO of Abitibi-Consolidated. And
Mr. Weaver will follow will be followed by David Paterson, Chairman, President and CEO of
Bowater. We will then take your questions. Mr. Weaver?
John Weaver: Good morning, everyone. Thank you for joining us today. This is a very exciting day
and important day for both Abitibi-Consolidated and Bowater. With me today are David Paterson, and
Pierre Rougeau, CFO of Abitibi-Consolidated, and CFO and Bill Harvey, CFO of Bowater.
Id like to start by saying a few words about the strategy behind this merger and the significant
benefits we believe it will bring to our shareholders, customers and other stakeholders. Then, I
will hand the call over to David who will give you Bowaters perspective and provide detail of the
combined company. At the end, we will take your questions.
The strategic rationale for this merger of equals is clear. Combining the two companies will
create a leading global paper and forest products company that is stronger, both operationally and
financially, than either company and is better able to compete in an increasingly global market.
As you know, our industry is facing significant challenges. Our customer needs are changing. The
competition continues to increase, and there is lower demand for newsprint in North America. Given
these challenges, the benefits of combining our companies are compelling. We will strengthen our
ability to generate efficiencies, to improve our financial profile and to create an asset mix that
will put us in position to better meet customer needs and compete more effectively in the global
marketplace.
Additionally, this transaction will create significant value through the realization of
approximately US$250 million of annualized synergies. Achieving these efficiencies will make
Abitibi, Bowater a stronger competitor, a company that is better positioned for the years ahead.
Let me walk you quickly through the transaction. As you know, this is an all-stock merger of
equals with no premium paid by either side.
Former Abitibi-Consolidated shareholders will hold 48% of the new companys shares, and former
Bowater shareholders will hold 52%. The shares will be listed on the New York and Toronto Stock
Exchanges, and the new company will be incorporated in Delaware. We will report in US dollars and
utilize US GAAP.
The Board of Directors of the company will have will be 14 Directors, seven from each company.
And I will serve as Executive Chairman of the new company, and Dave Paterson, also a Director, will
be President and CEO. The transaction is subject to several approval levels, first of course, our
shareholder vote and regulatory approvals, both in the United States and Canada as well as
customary closing conditions. And we expect the deal will close in the third quarter of 2007.
The headquarters for the new company will be in Montreal, Canada, so itll be the executive
headquarters. And we will have our operational regional operational headquarters in Greenville,
South Carolina, which will be basically focused on the manufacturing and sales functions for the
south-eastern US mills. Before we go on to look at the what the company will look like, Id
like to speak to the synergies, which bring significant value to the overall transaction.
The synergies itself are, theres $250 million of synergies that come from basically four areas;
production or manufacturing synergies, SG&A, distribution and procurement. These costs synergies
are certainly through sale scale of the project, and we expect to realize $125 million of these
synergies by the end of the first year, and $250 million by the end of the second year. The NPV of
the cost synergies is significant at US$1.5 billion. This is about 65 60% of the combined
current equity value of the new company.
The synergies will come from as the four main areas Ive spoken to. And these are outlined in
slide six of your package, which has been sent to you. But in production, were looking for,
really, a synergy from a sharing of best practices across the new and bigger company. In SG&A,
certainly we have an overlap of administrative and sales offices, which will yield some synergies.
Distribution and logistics benefits come from our mill network and the ability to service customers
from various sites. And procurement will certainly be volume discounts are the main drivers.
The $250 million of synergies came from independent evaluation by both companies, and then we put
together a clean team, which really helped us focus on the true the value. And certainly the
$250 million synergies are in the range of relative transactions that have come from previous
transactions, which you can see on slide seven, at about 7.1% of last 12 months sales.
And if you look and finally, on a pro forma basis, if you look at the impact of the synergies on
the pro forma, you can see that EBITDA is increased from $876 million [over] the last 12 months
estimate, and with synergies would be $1.1 billion, so a significant bottom line impact by
delivering these synergies.
And with that, Id like to turn it over to Dave who will talk about what the new company looks
like.
David Paterson: Thank you, John, and good morning. This is an exciting day for Bowater and for the
new Abitibi, Bowater. On slide nine or page nine of the presentation, if you look at the relative
size of this new entity that weve created today on a sales basis, third-largest public company.
And on an enterprise value with synergies, you can see quite a significant pick-up in enterprise
value as we deliver the synergies that John discussed.
On page ten, look at our pro forma, Abitibi, Bowater together, you can see in terms of volume,
quite a large newsprint company, but also other products that are important in potential strategic
options for future growth as we move forward on the volume side and on a sales basis. Roughly 50%
or slightly less than 50% of our sales coming from newsprint, and you can see the diversified
portfolio businesses that we would have going forward.
On 11, clearly wed be an eastern Canadian, southeast United States asset-based company. We also
have a mill in South Korea, which is a Bowater mill. And we have a mill in the UK, which is an
Abitibi mill, so not only North American assets, but international asset, a large diversified
portfolio.
On 12, we look at both the product mix and the customer markets we hit. As you can see, we touch a
number of markets and customer sets, both in North America and globally. And on the product side,
we have a full range of communication papers for newsprint up to coated free-sheet products, quite
a broad product offering and quite a broad reach into customer base.
On 13, to reiterate earlier comments, we think this is a good deal for shareholders, employees and
customers. Its going to create a highly competitive company that can compete on a global basis.
The market of newsprint remains a very competitive market with over 15 suppliers in North America,
not counting those suppliers in the rest of the world. We continue to see this as an emerging
global market with new entrants and new competitors around the world.
And in terms of capacity, we think that the North American demand can easily be met by others in
the marketplace as well as the Abitibi, Bowater, so a very competitive market, which we plan to
continue to participate in. From a customer point of view, we feel that were going to be able to
deliver from a more stable financial platform, quality customer service, product development, and
ultimately, a viable, long-term, solid supplier that they can depend on.
And with that, Ill turn it over to John.
John Weaver: So just to summarize then, today, the merger of to Abitibi and Bowater creates an
industry leader that is strongly positioned to adapt to evolving customer needs and to meet the
challenges of the forest products market. We see upside potential for shareholders of both
companies.
Were a financially stronger business with improved cash flow, revenue and EBITDA, and substantial
value through realization of the over $250 million of synergies. There is benefits to our
customers in a competitive marketplace. Theres benefits to our employees as part of a stronger,
more competitive company, and we will be better positioned for success than either company would be
on its own.
So with that, well turn it back to Frank and questions.
Frank Alessi: Carissa?
QUESTION AND ANSWER SESSION
Operator: [OPERATOR INSTRUCTIONS]
And your first question comes from the line of Chip Dillon of Citigroup. Please proceed.
Chip Dillon: Yes, good morning. And by the way, thanks so much for the .
Frank Alessi: Chip, youre going to have to speak up a little. We cant hear you.
Chip Dillon: Yes. I said yes. Thank you, good morning. I wanted to thank you for the appendix
on the slides. That will save a lot of questions, Im sure, with that level of detail. So, thank
you. My first question is, on slide 13, you mentioned that the other North American suppliers will
have capacity equal to 70% of North American demand. I assume that is pretty much because I think
both companies combined are exporting what, roughly 30% of what you produce? And thats pretty
much an ongoing level of exports. Is that correct?
David Paterson: Yes Chip, this is Dave. Yes, thats true. Were both exporters. We both have
strong export positions. We both have mills internationally as well, which help us export from
North America as well. That segment as you know, the global growth in newsprint has been quite
strong in certain markets. We both participated in that, and we would both plan to continue
participating in that.
Chip Dillon: Okay. And then, if you could [ask] us what you have done in terms of how you
anticipate the anti-trust process will go. I could sit here and I know you can list all the
reasons, you havent made money in five years, youve got new people coming in the market, together
youre less than 20%. We could go on and on. But nonetheless, youve got some pretty powerful and
loud voices among your customers. And they may not like this. And what how do you think this
is going to go, both in Canada and in Washington?
John Weaver: Well, I think weve put together a strong case, and well be making our filings
immediately or within the next several days really. And I think you pretty well outlined some of
the points that were going to try to make. And certainly one is that, as weve said that, our
competitors, 15 competitors, have the ability to supply over 70% of North American demand. And
this is easily calculated from the statistics. And we will continue to build on that and other
issues as we look out to resolve it and were confident well be able to find a solution.
Chip Dillon: Okay. And last question, and then well turn it over. You mentioned you have 3.1
million tons of uncoated mechanical. What percentage of that or sorry, what is the tons that
you would consider to be supercalendared? Is it just the 880 at I think thats the number,
Abitibi? Or, is that not the right number to use?
David Paterson: Well, Bowater has super we have two mills that produce supercalendar SCA and
SCB, the Donnacona and Dolbeau. So, you need to add those in.
Chip Dillon: So, is the capacity of those ?
David Paterson: Its a little over a million.
Chip Dillon: Okay, got you. Thank you.
Dave Paterson: Youre welcome.
Operator: Your next question comes from the line of Joe Stivaletti of Goldman Sachs. Please
proceed.
Joe Stivaletti: Hi, good morning. I was just wondering if you could talk about the bond you have
outstanding, and just confirm that your intent is to leave those bonds outstanding? It looked like
in the pro forma as the total debt wasnt going to change. And it doesnt appear that you have
covenants that would require those bonds to be taken out.
John Weaver: Lets let Bill answer that one.
Bill Harvey: At least, Ill speak on our side. And then, Pierre can follow. From the Bowater side,
we have no bonds that would require any redemptions because of this transaction.
Pierre Rougeau: its the same thing here.
Joe Stivaletti: So, youre not required to take out any of the bonds? And I know that youre
talking about a closing that isnt until the third quarter, but would you envision any major
changes to your debt structure as part of this transaction or in conjunction with it? Or, have you
not had a time to address that yet?
John Weaver: I think that certainly in the time that goes forward, both companies will continue
their commitments to pay down debt that weve spoken to publicly. And I imagine as we put together
the new company, well continue to be have a focus on overall debt reduction and increasing the
financial flexibility of our company.
David Paterson: John raises a good point. Well be independent companies for several months here.
And from a Bowater perspective, we continue to do our land sales and debt reduction plan as weve
outlined in previous discussions.
Joe Stivaletti: Right, right. Okay, great. And I just have you as part of this combination,
have you identified any assets that would look to sell? I know Bowaters been doing the
timberlands, and Abitibis announced about the hydro. But, I wondered if there was anything else
that you had identified that as a result of the combination, you would think would make sense to
divest?
David Paterson: Well, we the $250 million of synergies we identified, thats not based on any
other asset disposals other than the ones were doing independently from each other.
Joe Stivaletti: Okay, thank you.
David Paterson: Youre welcome.
Operator: And your next question comes from the line of Edings Thibault from Morgan Stanley.
Please proceed.
Edings Thibault: Good morning, gentlemen. A quick question on the synergies, just wondering if you
could put into buckets dollar buckets or rough dollar buckets, the source of the synergies?
Dave Paterson: John?
John Weaver: So well, weve based on our analysis we got for production and manufacturing
efficiencies, we have approximately $105 million. In the SG&A bucket, we have $85 million, and for
distribution, $30 million, in procurement, $30 million. So, thats how it adds up to $250 million
of synergies.
Edings Thibault: Great, thanks. And then, one other final question is, can you talk about, John,
how you and Dave anticipate working together with the Executive Chairman position and CEO position,
how you anticipate thatll work going forward?
John Weaver: I think that Ill speak first, and then Dave can make some comments. But, weve
outlined certain responsibilities that well do together, and we really look forward to creating a
team. Well be working together on people and organizational aspects as well as strategy. And
certainly on the integration and synergies will head up that team. And on a day-to-day basis, I
will have corporate functions, and Dave will have sales and manufacturing.
David Paterson: And I guess the only thing Id add, I think theres going to be plenty on our
plates to do. The merging of these two cultures and two organizations is critical to our success.
John and I have gotten to know each other over the course of this process, and Im confident and
look forward to making and creating a great company.
Edings Thibault: Great, thank you.
Operator: And your next question comes from the line of Rich Schneider of UBS. Please proceed.
Rich Schneider: I was wondering if you could talk about how this may change your relationship with
the newsprint publishers? Now, the industry seems to be going to six-months contract, and how do
you see the relationship maybe even evolving when you have this kind of a merger taking place?
David Paterson: Well, let me take a crack at that one. I think its important that our customers
and we be successful. Clearly, the challenges that we face in terms of newsprint consumption are
mutual challenges, and we work very closely with our customers now and in the future. I think our
role as manufacturers is to be globally competitive, make high-quality products and have financial
stability that our customers can depend on while delivering products and services they need.
I think they are on their side, from discussions and reading, certainly are facing new business
challenges as their business model changes. And I would hope, and we believe, that its critical
for their success that they have a strong, viable newsprint supplier such as AbitibiBowater who can
help them through those transitions. So, I think well be fine with our customers. And we know
our customers, either through selling, or in many cases, both companies have had joint venture
invest strategies with customers. So, we have deep knowledge and appreciation of each other.
Rich Schneider: And the focus has been, obviously, on newsprint. But, the other operations are 52%
of the mix. Could you talk about some of the things you may be looking to do with some of the
other key operations like uncoated groundwood or the lumber operations maybe differently in this
combined entity?
John Weaver: Well first of all, it certainly is a more diversified company. We have a much bigger
three billion board feet of lumber, so we have a much more diversified in terms of lumber. And
certainly with the uncoated, mechanical grades, we provide a one-stop shop all the way from
directories all the way up through the supercalendar grades, even up to mechanical groundwood
grades and also our new and innovative High Brights that weve introduced to the marketplace. So,
I think we have basically a one-shop one-shop stop for our various customers.
David Paterson: And I would add Rich, I think from a Bowater perspective, weve always talked about
options in terms of conversions and upgradings. And I think from a larger and more financially
stable platform that we could do that, hopefully on an accelerated pace. So, its quite exciting
for us. I think its quite exciting for Johns team. I know its quite exciting for Johns team.
And it gives us the ability to do some things we might not have been able to do as independent
companies.
Rich Schneider: And just that last question, does any of this change what youre been looking to
do with your hydro assets?
John Weaver: No, I think we announced our partnership on Friday, were going to do a 25%
financial partner in our hydro assets and at the end of the day, as weve always said, the new
company, or Abitibi to start with will continue to operate those assets and were not planning to
divest of those assets.
Rich Schneider: Thank you.
Operator: Your next question comes from the line of Mark Wilde of Deutsche Bank. Please proceed.
Mark Wilde: Good morning. John, just kind of a question where we maybe take two steps back. I
wonder if, from your perspective, there are any lessons to be learned from the prior combinations
that particularly Abitibi has gone through that youve been a part of, either Stone Consolidated
and/or the Donahue deal?
John Weaver: Well, I think one of the lessons were going to use is we certainly have learned how
to deliver on the synergies. And so, were going to use some of the processes and operational
procedures that we learned during those previous transactions to ensure that we deliver on the $250
millions of synergies that come to the bottom line.
Mark Wilde: And what about when you get a merger of equals, one of the obvious questions is
whos in control and how do we make decisions, any thoughts on that?
David Paterson: Well let me answer, Mark. I think youre touching on a critical point, which is
really how do we bring the cultures of these two companies together so we can deliver the results
faster. And Ill say from my perspective, its clearly been a focus of our Board of Directors and
our senior management team that, as we go into this venture and we committed to this venture that
we all had to commit to make it work.
And the issue youre touching on is critical, if we dont work together quickly as a team, and Im
confident that John and I can do that, then we wont be able to deliver the synergies. So thats a
key element, and I think all the people have discussed it quite openly, and weve been above board
about it, and John and I quickly came to an understanding of how we would operate as individuals.
And Im very comfortable, and I know Johns very comfortable, because we have spent significant
time discussing this very issue and understand its importance to success.
John Weaver: And I think when you do have bad experiences, if we have had some, we want to make
sure we dont duplicate those again. So we outline ways to ensure that they dont happen again, and
thats been part of the discussions.
Mark Wilde: Okay. And then just two details. Can you talk about the status and amount of tax
shields in the new co, and then also perhaps employment contracts?
Pierre Rougeau: Tax shields on new co will be basically lets say the same as the two companies
have together right now. So we dont expect to lose any of the tax shield going into this new
company. And I think thats one of the key elements of this transaction as well.
Mark Wilde: Okay. Can you remind us of what that total number would be?
Pierre Rougeau: I beg your pardon?
Mark Wilde: Can you remind us of what the total number would be?
Pierre Rougeau: Well in the US its about US$1 billion of NOLs.
Mark Wilde: Okay. In Canada?
Pierre Rougeau: In Canada the number is less because both companies basically went back in time,
and we have recaptured, on our own without talking to each other we just happened to do the same
thing. Weve recapture past NOLs. So what was done is that weve increased our capital cost
allowance for going forward.
Mark Wilde: Okay. And then finally .
Pierre Rougeau: So, we dont expect to be paying cash taxes for a while, even though the synergies
are quite significant.
Mark Wilde: Okay. And then finally, just anything on employment contracts.
John Weaver: I think both companies have a limited number of severance compensation agreements and
its certainly nothing that should significantly impact the deal at all. And these will be filed
when we do the filing.
Mark Wilde: Okay. Thanks, John. Thanks, Dave. And good luck.
David Paterson: Thank you, Mark.
Operator: Your next question comes from the line of [Don MacDougall] of Adage Capital. Please
proceed.
Don MacDougall: Ill start by saying that it seems that this makes a lot of strategic sense, but my
question was really on valuation and why we should assume that Fridays closing price is the right
value to put on the respective assets?
It seems to me that, after five years of under performance, which I attribute primarily to the
Canadian dollar for Abitibi, that the Bowater shareholder here might be getting the better deal,
particularly in light of the hydro assets, plus the Augusta. And the second question that I have
with respect to this is, while we wait for approval Bowater will continue to pay a dividend, will
there be any adjustment for the Abitibi shareholder?
John Weaver: First of all, Im sure the Bowater shareholders will be happy to hear you think they
got the best of the deal, but I think that we looked at this and weve basically focused on making
a merger of equals. The relative market transaction is based on the market of the last 20 days,
the market of the last year, the last six months. Weve been pretty much in that range market wise
for the last year, plus or minus a little bit.
And so, we feel like that was a fair strike relationship. And I think the big driver for this, for
both shareholders, is delivering on the $250 million of synergies which will significantly outweigh
the other parts of the transaction.
David Paterson: The dividend question, we as an independent company still plan to pay the dividend,
the Board is very strongly behind that. And as the companies come together post closing, thatll be
for the Board to decide going forward.
Don MacDougall: Thanks.
Operator: Your next question comes from the line of Bill Hoffman of UBS. Please proceed.
Bill Hoffman: Good morning. The first question is just you indicate that you think the competitors
can provide 70% of the newsprint requirements in North America, I just wondered if you could sort
of explain how you define that and how much of that includes imports? And then the second question
is just, having to deal with asset consolidations/rationalization and how much I know you cant
talk about specific facilities, but how much capacity rationalization do you think you can achieve
through the merger?
David Paterson: Okay, well let me take a crack at the first question. I think its a number that
says that, if the capacity thats available in North America was to stay in North America from our
competitors hands and service the US and Canadian marketplace, that they could cover 70% of it.
So that says they stop exporting, they take the US share they want to take, or the North American
share they want to take, and the market is adequately supplied.
North American producers in total, and of course I think the two of us together, the two biggest
exporters. But most North American producers are exporting a fairly significant portion of their
capacity. So in our opinion, there is ample capacity to meet North American demand, particularly in
light of that weve been losing demand in North America for a few years now. So thats really
where that number comes from. John, .
Bill Hoffman: Would that include the groundwood capacity?
David Paterson: Groundwood machines can be newsprint machines. I mean most of them used to be
newsprint machines. So in theory you could make the argument, I think we will make the argument,
if the market were hot you could switch back to making newsprint.
John Weaver: But the basic calculation comes from, if you look at the year-end statistics, the
capacity production was something like 12.5 million tons. AbitibiBowater has 6 million tons, so
that leaves 6.5 million for the rest. US demand is just under 10, more like 9.5 million, so 6.5
divided by 9.5 you get your 70% demand.
David Paterson: Right.
John Weaver: And as far as rationalization, I think that we have overall investigation, our
thinking process around delivering of the synergies has not really gotten into any rationalization
of our operating units, so we believe that we can deliver the $250 million of synergies independent
of that.
Bill Hoffman: Great, thank you.
Operator: Your next question comes from the line of Kevin Cohen of Banc of America. Please
proceed.
Kevin Cohen: Good morning, congratulations. From a bond holder perspective Im wondering, can you
comment if all the bonds .
Frank Alessi: Kevin, can you speak up please? We cant hear you.
Kevin Cohen: Can you hear me now?
David Paterson: A little better.
Frank Alessi: A little better.
Kevin Cohen: Im wondering if you can comment, will all of the bonds be warehoused in the same
box? And in conjunction with that, are there any cross guarantees in place so that all of
Bowaters assets support Abitibi debt equally and ratably?
Frank Alessi: Youre going to have to repeat the question and we ask that you really speak up
louder please.
Kevin Cohen: All right, Ill try this. Maybe the headsets not working well. Can you comment, will
all of the bonds be warehoused in the same box? And in conjunction with that, is there a cross
guarantees in place so that all of Bowaters assets support Abitibi debt equally and ratably?
Bill Harvey: Kevin, its Bill Harvey, I think I understand what youre asking. And at this point,
were structuring the deal, but we have no plans yet to put any new guarantees in place. Of
course, when we release the proxy circular you can look into that, but at this point there are no
plans to do any guarantees.
Kevin Cohen: Okay. And then secondarily, can you comment in terms of the 2007 outlook for
newsprint consumption I guess in North America? Kind of what you guys are looking for and how
would you think about Asian imports, Chinas always the [wall of worry] that the markets concerned
about, and the ability of the new company to cut capacity to stabilize prices? Thanks a lot.
David Paterson: Okay, let me take a crack at that one. I think youve seen the sort of industry
analects or industry pundants view of whats going to happen in North America consumption, clearly
the market needs to stabilize in North America. We think 07 is going to be another challenging
year on the newsprint side in North America, not only because of demand issues, but to the second
point you pointed out.
We clearly believe that international capacity, primarily in Asia and China, is going to impact the
market, either through direct imports, which many of our customers have said that theyre engaged
in trials and in discussions in terms of procuring Chinese tonnage. Or, the other impact will be
in the international markets where we see Chinese tonnage displacing North American exports.
And weve already seen some of that in the first quarter, particularly in markets in Southeast
Asia. So, its a highly competitive market. I think both companies, in this period while we remain
independent, will have to make their own decisions and continue to execute their 07 business
plans. From my perspective, Ive got to run the company as Bowater and under the guidelines of our
07 business plan until were merged.
John Weaver: I think Dave just his discussion of the challenges our industry faces is one of the
compelling reasons for this transaction. Bringing the two companies together and delivering on the
$250 million of synergies will certainly provide cost efficiencies to the new company, as well as
the ability for us to deliver to our customers new products and new quality.
Kevin Cohen: Great. Thanks a lot, and good luck.
David Paterson: Thank you.
Operator: Your next question comes from the line of Paul Quinn of Salman Partners. Please proceed.
Paul Quinn: Yes great, thanks. Just a question on the synergies, you outline 105 million in the
production of synergies, but I think I just caught John saying that theres no rationalization in
that 105 million, i.e. that 105 million doesnt assume that you shut down any facilities, is that
correct?
John Weaver: Thats correct. The synergies are based on all operations to continue forward.
Paul Quinn: Okay. Secondly, on just does the affect the remaining purchase of the part of
Alabama River that you dont own? Or, youre still going ahead with that right?
John Weaver: It was the remaining part of Augusta.
Paul Quinn: Oh right, Augusta, sorry. Okay thanks. And just lastly, just on the management teams,
whats the build of that team? You sort of announced yourself and Dave, but whats the rest of the
team look like?
John Weaver: Well I think, basically Dave and I are the only two guys that have jobs for sure. As
you think about it we expect this process to take until the third quarter, therefore its probably
premature to announce our executive team. But we expect it to be a balanced structure from both
companies. And as we get nearer to the closing, well be making announcements.
Paul Quinn: Great. Thanks, guys.
Operator: Your next question comes from the line of Sean Steuart of TD Newcrest. Please proceed.
Sean Steuart: Thank you, a lot of my questions have been answered. The $125 million in one-time
costs associated with getting the synergies, how quickly will that be spent once the deal closes?
David Paterson: Well let me take it. I think a lot of it is front loaded and I think a good number
to say is two-thirds will be front loaded, and a lot of it is transaction expense and severance
expense for those employees that dont stay with the new company. The back half, the other third,
is going to be around execution of the synergies.
Sean Steuart: The severance ?
David Paterson: So two-thirds up front in the first 12 months, and the last third in the second 12
months.
Sean Steuart: So the severance would just be I guess head office or managerial guys obviously not
associated with mill closures?
David Paterson: Well as John has said a couple times, this doesnt contemplate any mill closures or
mill rationalizations, and its really sort of the direct overlap of corporate functions and
support functions.
Sean Steuart: And David, just safe to assume that youre obviously going to be moving to the
Montreal head office indefinitely?
David Paterson: Yes, please dont direct any realtors to me. Yes, Im moving to Montreal.
Sean Steuart: Okay. That covers my questions, thank you.
Operator: [OPERATOR INSTRUCTIONS]
Your next question comes from the line of Steve Chercover of D.A. Davidson. Please proceed.
Frank Alessi: And then this will be the last question, Carissa. Is that all right?
Operator: Sure.
Frank Alessi: Thank you.
Steve Chercover: Okay thanks, just a couple quick ones. First of all, can you tell us do you
have a notion of what the final share count will be?
David Paterson: Cant hear you.
Steve Chercover: The final share count for the merged entity?
Bill Harvey: Shares outstanding. Youre asking shares outstanding of the new co?
Steve Chercover: Thats correct.
Bill Harvey: Itll be 57 million.
Steve Chercover: 57 million. Do you have a sense of what CapEx will be combined?
David Paterson: I think on a pro forma basis we just added our 07 business plans.
Bill Harvey: Right.
John Weaver: Which both of us have announced, so basically 150, 175 I think.
Bill Harvey: Yes.
David Paterson: Yes.
Steve Chercover: Thanks. And one last one, have you given any thought, or has anyone reflected to
you what the index composition will be? Will it be included in both the TSE and the S&P? Or any
thoughts on that?
David Paterson: Hes asking the split, where were going to trade.
Steve Chercover: I know youre going to trade in both Toronto and New York.
David Paterson: Right.
John Weaver: Yes, but I think as a US incorporated company well part of the S&P 400 and not part
of the TSX. But I cant really say what percent of the index.
Steve Chercover: That was it, thank you.
John Weaver: Thanks.
David Paterson: Thanks, Steve.
Frank Alessi: Thank you, Carissa, thank you everyone for joining. Have a good day.
Operator: Thank you for your participation in todays conference. This concludes the presentation,
you may now disconnect. Good day.
Forward-Looking Statements
Any statements made regarding the proposed transaction between Abitibi and Bowater, the
expected timetable for completing the transaction, benefits or synergies of the transaction, and
other statements contained in this transcript that are not historical fact are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are
based on managements beliefs, certain assumptions and current expectations. These statements may
be identified by the use of forward-looking terminology such as the words expects, projects,
intends, believes, anticipates and other terms with similar meaning indicating possible
future events or actions or potential impact on the businesses or shareholders of Abitibi and
Bowater (separately and together the Companies). Such statements include, but are not limited
to, statements about future financial and operating results, Abitibis and Bowaters plans,
objectives, expectations and intentions, the markets for Abitibis and Bowaters products, the
future development of Abitibis and Bowaters business, and the contingencies and uncertainties to
which Abitibi and Bowater may be subject, statements regarding our ability to: generate
efficiencies and improve our financial profile; achieve significant synergies and the manner in
which we expect to achieve them, in particular an estimated $250 million of synergies within two
years, which we expect to accomplish without mill closings or significant work force reductions;
become more competitive; improve product quality and breadth; develop new products and better serve
our customers; as well as other statements that are not historical facts. There is no assurance
the transaction contemplated in this transcript will be completed at all, or completed upon the
same terms and conditions described. All forward-looking statements in this transcript are
expressly qualified by information contained in each companys filings with regulatory authorities.
The following factors, among others, could cause actual results to differ materially from
those set forth in the forward-looking statements: the ability to obtain required governmental or
third party approvals of the combination on the proposed terms and schedule and without material
concessions; the failure of Abitibi or Bowater shareholders to approve the combination; the
exercise by a material percentage of Abitibi shareholders of their dissent rights; the risk that
the businesses will not be integrated successfully or that the anticipated improved financial
performance, product quality and development will not be achieved; the risk that other combinations
within the industry or other factors may limit our ability to improve our competitive position; the
risk that the cost savings and other expected synergies from the transaction may not be fully
realized or may take longer to realize than expected; and disruption from the transaction making it
more difficult to maintain relationships with customers, employees or suppliers. Additional
factors that could cause Abitibis and Bowaters results to differ materially from those described
in the forward-looking statements can be found in the periodic reports filed by Abitibi and Bowater
with the Securities and Exchange Commission (the SEC) and available at the SECs internet site
(http://www.sec.gov). Neither Abitibi nor Bowater undertakes and each specifically disclaims, any
obligation to update or revise any forward-looking information, whether as a result of new
information, future developments or otherwise.
Additional Information and Where to Find It
In connection with the proposed transaction, AbitibiBowater Inc. will file with the SEC a
registration statement on Form S-4, which will include a proxy statement of Bowater, a prospectus
of AbitibiBowater and a management information circular of Abitibi. Shareholders are urged to read
the joint proxy statement/prospectus/management information circular regarding the proposed
transaction when it becomes available, because it will contain important information. Shareholders
will be able to obtain a free copy of the joint proxy statement/prospectus/management information
circular, as well as other filings containing information about Abitibi and Bowater, without
charge, at the SECs internet site (http://www.sec.gov). Copies of the joint proxy
statement/prospectus/management information circular and the filings with the SEC that will be
incorporated by reference in the joint proxy statement/prospectus/management information circular
can also be obtained, without charge, by directing a request to Abitibi, 1155 Metcalfe Street,
Suite 800, Montreal, Quebec Canada H3B 5H2, Attention: Investor Relations (514) 394-2341, or to
Bowater, 55 Camperdown Way, Greenville, South Carolina USA 29602, Attention: Investor Relations
(864) 271-7733.
Participants in the Solicitation
Abitibi, Bowater and their respective directors and executive officers and other persons may
be deemed to be participants in the solicitation of proxies in respect of the proposed combination.
Information regarding Abitibis directors and executive officers is available in the 2005 Annual
Report on Form 40-F filed with the SEC by Abitibi on March 31, 2006, and the management information
circular with respect to Abitibis 2006 Annual Meeting of Shareholders filed by Abitibi on SEDAR on
March 31, 2006. Information regarding Bowaters directors and executive officers is available in
the Annual Report on Form 10-K filed with the SEC by Bowater on March 13, 2006 and the Proxy
Statement with respect to Bowaters 2006 Annual Meeting of Stockholders filed by Bowater with the
SEC on April 12, 2006. Other information regarding the participants in the proxy solicitation and
a description of their direct and indirect interests, by security holdings or otherwise, will be
contained in the joint proxy statement/prospectus/management information circular and other
relevant materials to be filed with the SEC when they become available.