DOMTAR INC. History

Company History:

Domtar is one of Canada's leading suppliers of pulp and paper products. With a network of facilities across the country, Domtar is involved in every aspect of the pulp and paper business, from logging to pulp production and from manufacturing to selling fine papers and newsprint. Domtar has become a major manufacturer of construction materials such as gypsum wallboard, and in addition offers a diversified line of packaging materials. In 1989 the company completed the sale of its original chemical and energy businesses, eliminating the last vestiges of what had once been known as the Dominion Tar & Chemical Company Limited.

Dominion got its start in 1903 with the construction of a coal tar distillation plant in Sydney, Nova Scotia. Coal tar distillation is the process whereby a range of valuable chemicals is distilled from tar, which itself is obtained by a preliminary heating and distillation of coal. The resulting commercial by-products can be divided into three categories, those being hydrocarbons, such as benzene and napthalene; acids, such as phenol and the creosols; and bases, such as aniline, which provide a variety of dyes. In addition, the pitch residue of coal tar distillation is useful in the construction of roads, an application first made only a few years before the founding of Domtar in 1903. At that time, the commercially valuable properties of coal tar were just beginning to be explored, but as Canada's economy rapidly industrialized the Dominion plant turned out an increasing number of products, and the company grew quickly.

World War I culminated a period of great prosperity for Canada and Dominion Tar. The ensuing slump was fortunately brief, and by the mid-1920s industrial activity was again strong. Dominion's sales increased accordingly. The widespread growth of automobile traffic required the construction of secure, all-weather roadways, boosting Dominion revenue from the sale of pitch; while the coal tar distillates continued to find an increasing number of applications in the chemical, textile, and steel industries. The relatively new field of pharmaceuticals also derived a variety of compounds from coal tar, as did the even-more-recent science of plastics. As a sign of its vigorous growth in these many areas, and in order to raise capital for further expansion, in 1929 Dominion Tar was incorporated and shortly thereafter offered its shares for public sale.

The year 1929 was perhaps not the ideal year in which to have incorporated. The October crash of the Montreal and Toronto stock markets, along with virtually every other in the world, precipitated ten years of depression in Canada. Dominion, which had by this time relocated to Quebec, weathered the storm with considerable success, although failing to pay a stock dividend as regularly as its leaders might have wished. Due to the wide variety of industries for which it manufactured goods, Dominion was able to maintain a minimum amount of business during even the leanest years, and after enduring a series of enforced layoffs and cuts in capital spending, emerged as a stronger, more efficient company by the end of the decade. By that time Canada had joined the Allies in World War II and the Canadian economy tooled up for what would become a 30-year boom.

The 1950s were not only a period of sustained growth at Dominion, but also marked the beginning of the company's expansion into the paper and construction businesses. With its enormous forest lands, Canada had become the world leader in the manufacture of paper products, in particular supplying the United States with a good portion of its paper needs. By the mid-1950s Dominion had studied closely the growing worldwide paper market and, flush with cash after a series of excellent years, in 1957 acquired 33% of Howard Smith Paper Mills Limited, with major mills at both Cornwall, Ontario, and Windsor, Quebec. Howard Smith was a maker of fine paper for printing and writing purposes and of kraft paper for applications requiring strength. Dominion's entry into the paper business, though limited, was viewed by most observers as somewhat unorthodox and many doubted that such a combination would prove manageable. The Dominion picture was complicated further the following year when it purchased an interest in Gypsum, Lime, & Alabastine Canada Limited, makers of gypsum wallboard for the construction industry. The company was now stretched across the three distinctly different businesses of chemicals, paper, and construction materials; but the financial results were excellent, encouraging the even bolder moves soon to follow.

At the close of the 1950s, Dominion was faced with a fundamental and recurring question about the direction of its future growth, a question it would answer differently during the following 30 years of its history. As President Wilfred Hall expressed it in 1964, in Canada as elsewhere businesses could not afford to remain small, yet Canada was unusual in the limited size of its internal markets. Dominion would therefore either have to concentrate exclusively on one of its businesses and expand internationally, or remain a fundamentally Canadian concern and diversify its interest across a number of industrial boundaries. In 1960 Hall and his advisors at Dominion chose the latter alternative; 30 years later, in an age of global competition, Domtar would reverse itself and begin paring down its holdings. Accordingly, in 1961, Hall announced a complex multiple-merger involving Dominion; the remaining shares of Howard Smith Paper; a maker of newsprint, St. Lawrence Corporation Limited; and Hinde & Dauch Limited, manufacturer of corrugated containers and merchandising displays. The result was an early example of the conglomerate, one of Canada's ten largest companies with sales approaching C$400 million and some 18,000 employees at over 270 facilities across the length of Canada. By any measure it was a complex and somewhat ungainly mixture of diverse businesses, and its sorting out and eventual coordination would take the better part of the decade to finish. Many industry analysts doubted that it would ever happen.

The newly reformed Dominion Tar & Chemical Company consisted of six operating groups, each of these in turn broken down into many divisions. Domtar Chemical represented the company's original interests in coal tar by-products such as creosols, dyes, and pitch, as well as recent acquisitions in salt mining and lime; Domtar Construction Materials handled wallboard products and a growing business in wood laminates for use in home furnishings; the pulp and paper products were split among three groups; and Domtar even entered the consumer products market via the Javex Company, maker of various cleaning agents. Within a few years the company had added the beginnings of an overseas presence--paper and plastics in the United Kingdom, bleach in the West Indies, and lime in Washington state. More substantial yet was the 1963 purchase of a 49% interest in Cellulosa d'Italia, an Italian paper company. Dominion's focus, however remained firmly on Canada and the United States, and from the beginning it proved remarkably adept at melding its diverse interests into a coherent whole. The various divisions did quite a bit of business with each other, allowing the company to keep product runs at their maximum and most efficient lengths while saving money on marketing expenses. Perhaps most impressive was Domtar Inc.'s--the name was officially changed in 1965--smooth absorption of its new paper businesses, which were soon providing more than 50% of corporate sales. In the space of a few years, Domtar had transformed itself from a medium-sized company into a huge conglomerate, best described as a pulp and paper manufacturer.

By the time T.N. Beaupre had replaced Hall as president in 1967, the new Domtar had taken shape. Beaupre simplified the company's structure by grouping its divisions into chemicals, construction, and pulp and paper units; and he sold off the consumer products division to Bristol-Myers for $37 million, recognizing that his company could not compete with the other, larger marketers of consumer goods. Domtar was now Canada's leading producer of fine papers, with more than 500 different grades in production; but its success in paper brought with it a long series of bitter disputes with organized labor, traditionally strong in the paper industries and hungry for a larger share of the profits generated by the robust economy of the late 1960s. Domtar has rarely enjoyed a year without either a strike, the threat of a strike, or the need to negotiate important and hard-fought contracts with labor, all of which has tended to complicate every aspect of its business planning.

After a number of excellent years at Domtar and in Canada generally, the bottom dropped out of the world economy in 1973 when the Organization of Petroleum Exporting Countries (OPEC) succeeded in quadrupling the price of oil. In the ensuing recession of 1974-1976, the downturn in Domtar's pulp and paper business was so severe that the company thought seriously of getting out of the industry altogether. Canada's share of the world market had shrunk to 19%, from 25% in 1961, and the prosperous 1960s had saddled Domtar with high labor costs at a time of shrinking sales and margins. New president Alex D. Hamilton adopted a conservative policy of closing marginally profitable mills while looking for further investments in construction, preferably in the United States. In 1978 Domtar satisfied both of those goals with its C$35 million purchase of Kaiser Cement's California wallboard facilities, which would also help to balance the flow of Canadian and U.S. dollars at Domtar, a company increasingly dependent on exports to the United States. Industry analysts described the move as typical of Domtar's recent tendency toward a conservative policy--the purchase was made a little late and at rather too high a price, but it was basically sound.

It was at about this time that Domtar became involved in a lengthy series of takeover bids. When the Argus Corporation, for many years owner of about 20% of Domtar's stock, decided to sell its Domtar holdings they were quickly snapped up by MacMillan Bloedel, a west-coast paper competitor of Domtar's. MacMillan then made an offer for Domtar's remaining shares, which elicited a counteroffer by Domtar for all of MacMillan's stock. At that point Canadian Pacific, a third paper company, also made a bid for MacMillan, prompting the premier of British Columbia to decree that MacMillan could not be purchased by any company outside the province. Chastened, MacMillan sold its 20% of Domtar to an agency of Quebec provincial government, the Caisse de dépôt et placement du Québec, entrusted with the investment of pension funds. A short time afterward, a second Quebec agency, the Société générale de financement du Québec also acquired a piece of Domtar, and by August 1981 the Quebec government thus controlled more than 40% of the company's stock. Under new president and CEO James H. Smith the company quickly underwent a thorough restructuring of its board of directors, which, together with the Quebec government's stock control, led to concern among English-speaking Canadian businessmen that Domtar would become an appendage of the French-speaking Quebec government. The issue came to a head when Domtar asked the Canadian government for help in funding the C$1 billion rehabilitation of its massive paper mill at Windsor, Ontario. The request was denied, fueling the conviction of Quebecois separatists that their province would never receive fair treatment at the hands of the Canadian government. As it turned out, Domtar went ahead with the work at the Windsor mill, creating a world-class fine-paper facility, while the Quebec government tried unsuccessfully to sell off the 46% of Domtar stock it still held.

In the meantime, Domtar sales had passed the C$1 billion mark in 1977 and leaped to C$1.7 billion in 1981. The severe recession of the early 1980s forced the company into a belt-tightening strategy and led to its request for federal aid on the big Windsor mill project, but in general the decade was good to Domtar. The company was again faced with the question of how best to expand beyond its already considerable size, and this time President Smith and his board of directors decided to concentrate on a fewer number of global products. In essence, that meant the end of Domtar's chemical businesses, which had long been dwarfed by the company's paper and construction interests, and by 1990 the chemical assets had been sold for about C$100 million. On the other hand, in 1987 Domtar paid US$241 million for Genstar Gypsum Products Company's family of wallboard plants in the United States, strengthening its construction division, and by 1989 the C$1 billion Windsor plant was onstream, producing over one-half of the company's fine paper products.

Like most of the world's large corporations, in the early 1990s Domtar focused its energy on a limited number of products it was prepared to sell worldwide. With its chemical division gone, Domtar remained primarily a pulp and paper products and a construction products company, those divisions contributing C$1.3 billion and C$721 million, respectively, to the corporate sales total of C$2.5 billion. The remainder is generated by a packaging division that was split off from pulp and paper although the bulk of its products are paper-based. Domtar has become much involved in the recycling of its products, both paper and gypsum, in anticipation of a long stay among the elite of Canada's forest products companies.

Principal Subsidiaries: Brompton Lands Limited; Domtar Enterprises Inc.; Domtar Realties Ltd.; Domtar Sonoco Containers Inc. (50%); Jellco Packaging Corp.; Lithotech Inc.; Maine Timber Holdings Limited; Pacos Carrier Inc.; San Marcos Carrier Inc.; 804736 Ontario Limited; Techni-Therm Inc. (50%); Domtar International B.V. (Netherlands); Domtar Pacific Pty. Limited (Australia); Domtar Industries Inc. (U.S.A.).

Further Reading:

• Sinclair, Sonja, "Domtar: case history of a corporate trend," Candian Business, September 1964.
• Sinclair, Sonja, "Domtar: case history of a corporate trend--II," Canadian Business, October 1964.
• Ross, Val, "Paper tigers," Canadian Business, September 1978.
• Boardman, Anthony, Ruth Freedman, and Catherine Eckel, "The Price of Government Ownership: A Study of the Domtar Takeover," Journal of Public Economics, 31, 1986.

Source: International Directory of Company Histories, Vol. 4. St. James Press, 1991.

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