March 27, 2000
Integration of Nippon Paper and Daishowa Paper
Nippon Paper Industries Co., Ltd.
Daishowa Paper Manufacturing, Co., Ltd.
We, Nippon Paper Industries Co., Ltd. and Daishowa Paper Manufacturing Co., Ltd., are pleased to announce that both companies have agreed to integrate operations under a new holding company which is scheduled to be established on April 1, 2001 as described in "Objective and Overview of Integration." Both companies will be reorganized as wholly-owned subsidiaries of the holding company.
The current pulp and paper industry faces new challenges in order to cope with a rapidly changing business environment in which innovation of information and telecommunication technologies causes changes in the demand for paper, particularly when economic globalization intensifies international competition. With the implementation of consolidated management, cash-flow management, mark-to-market valuation, and the new method of accounting for pensions (the actuarial valuation of pension obligations) coupled with the divesting of cross-shareholding investments, the improvement of management efficiency has become a pressing and important issue which must be addressed without delay.
Based on the above understanding, we have agreed to pursue the mutual benefit of both companies in order to improve our competitiveness and to achieve the most efficient deployment of our capital on a consolidated basis. Further, we have reached an agreement that both companies will set up the holding company for the purpose of joint management of the production and sale of paper, the core business of both companies.
With a spirit of mutual trust and respect in mind, we are both prepared and determined to proceed with the establishment of the holding company and the integration of both operations. We believe that this integration will improve our capability to meet our customers' diversified needs in a timely manner and will also increase shareholders' value. We would like to take this opportunity to express our gratitude to our customers, vendors, and shareholders for the patronage and assistance they have rendered to us for many years. We sincerely appreciate their understanding and ongoing support.
Objective and Overview of Integration
General
Both, Nippon Paper Industries Co., Ltd. ("Nippon Paper") and Daishowa Paper Manufacturing Co., Ltd. ("Daishowa Paper") have been striving to strengthen their corporate bases by implementing each of their mid-term business plans separately. However, both companies have agreed to unified management of their operations in order to evolve the new corporate group into a more profitable and competitive one in the 21st century, one which is responsive to the rapidly changing business environment, while each maintains its own originality and independence.
Framework
1. Nippon Paper and Daishowa Paper will jointly set up a joint holding company (the "Holding Company"), and both companies will become wholly-owned subsidiaries of the Holding Company through the exchange of shares.
2. The establishment of the Holding Company and the exchange of shares of Nippon and Daishowa for the Holding Company shall take place on April 1, 2001.
3. The Holding Company's main function is to formulate and implement business strategies for the new group as a whole, and the size of the Holding Company is to be minimized. The Holding Company will utilize the staff of both Nippon Paper and Daishowa Paper.
4. The Holding Company will set up a joint sales company to which Nippon Paper and Daishowa Paper will transfer a sales force to handle sales of agreed-upon grades of paper.
Ratio for the Exchange of Shares
The ratio for the exchange of shares will be determined through discussions between Nippon Paper and Daishowa Paper, considering the respective valuations made by outside consultants including the Industrial Bank of Japan, Limited.
The Name of the Holding Company and the Board Members
1. The name of the Holding Company shall be determined prior to its establishment after discussions between both companies. Nippon Paper and Daishowa Paper, which will become subsidiary companies of the Holding Company, will retain their current names.
2. The Holding Company's Board of Directors shall consist of 10 members including the Chairman, the President and two executive Vice Presidents. Nippon Paper and Daishowa Paper shall nominate 6 and 4 Board members, respectively. The Holding Company shall have 3 statutory corporate auditors. Nippon Paper and Daishowa Paper shall nominate 1 and 2 statutory corporate auditors, respectively.
Strengthening of Corporate Structure
Under the Holding Company, both companies shall make a great effort to achieve maximum synergy within the shortest time period, aiming at creating a first-class global enterprise. Each of the two companies will also try to reinforce the corporate base in a spirit of self-reliance by implementing the following measures:
•Nippon Paper shall fully implement its current mid-term business plan which includes the closing of the Miyakojima Mill, a reduction of the number of employees to 5,500, and a reduction of 50 billion yen in its interest-bearing debt.
•Daishowa Paper shall reinforce its mid-term business plan and shall try to reduce the number of employees to 3,000 at an early stage and to reduce its interest-bearing debt by 100 billion yen.
Other
A "Business Integration Committee" shall be formed to proceed the integration process and to realize the objectives of the integration at the earliest possible stage.