Grupo Portucel Soporcel History

Company Perspectives:

One of the Group's present priorities is its strategy of integration, which is part of its continued drive towards consistent growth and greater presence in international markets.

Key Dates:

1952:

Cacia pulp mill is opened and Portucel is founded.

1953:

Portucel begins producing pine-based pulp.

1957:

Eucalyptus-based pulp production is launched.

1964:

A second pulp mill in Setubal is established.

1967:

The Setubal mill begins pulp production; construction begins on a sister site for paper production, placed under a new company, Industria Nacional de Papeis (Inapa).

1969:

Inapa begins paper production.

1972:

Inapa becomes the first business to sell paper in Europe based on eucalyptus pulp.

1980:

Inapa launches Inacopia brand writing paper.

1984:

Soporcel pulp operations begin at Figueiro.

1991:

Soporcel begins the production of paper.

1993:

Portucel is listed on the Lisbon Stock Exchange as a step toward its privatization.

1995:

Sonae acquires a 29 percent stake in Portucel.

1998:

Papercel, a holding company for the Portugese government's stake in Portucel and Soporcel, is created.

2000:

Portucel acquires full control of Inapa.

2001:

Portucel acquires Soporcel, becoming one of the top five European integrated pulp and paper producers.

2003:

An agreement to sell a 25 percent stake in Portucel Soporcel to a Cofina-Lecta partnership is blocked by Sonae.The addition of Soporcel also allowed the company to shift away from its reliance on the pulp market, which had come increasingly under pressure from low-cost producers in Brazil and elsewhere. As part of that strategy, the Portucel Soporcel Group, as the company now began to call itself, launched a new line of SoporSet heavyweight papers in 2002.

The Portuguese government, reluctant to relinquish control of one of the country's major industries to foreign investors, nonetheless began accepting bids for part of its stake in 2003. By November, the government had chosen to sell 25 percent of Portucel to a partnership between Portugal's Cofina and CVC-controlled paper group Lecta. That deal would have given Portucel control of Lecta's pulp and paper operations in France, Italy, and Spain, as well as an additional 25,000 hectares of forest in Portugal owned by Cofina.

However, Portucel's other major shareholder, Sonae, opposed the sale. As one Sonae official told the Financial Times: "We don't understand why the government is seeking partners abroad when it could find them at home." With more than 37 percent of shareholder votes--including Sonae's 29 percent--siding with Sonae, the government was forced to return to the negotiating table in order to find a new form for Portucel's continued privatization. In the meantime, the Portucel Soporcel Group remained not only one of Portugal's premier companies but also a leader in the European pulp and paper scene as well.

Company History:

Grupo Portucel Soprocel is Portugal's leading producer of wood pulp and paper and ranks among the leading European integrated pulp and paper manufacturers. Formed through the merger of paper producers Soporcel and Inapa into Portuguese government-controlled pulp producer Portucel, the company now has an output of more than 1.2 million tons of largely eucalyptus-based wood pulp each year and one million tons of paper. Portucel is one of Europe's top five manufacturers of uncoated "woodfree" paper, which refers to the chemical process that breaks down wood pulp to produce a higher-quality, longer-lasting paper. A pioneer of the use of eucalyptus trees in the European paper industry, Portucel directly controls more than of 180,000 hectares of forest, representing 4.5 percent of the country's total forest and roughly 2 percent of Portugal itself. Nearly 70 percent of the group's forests are planted with eucalyptus. Portucel operates from three primary pulp and paper mill sites: Cacia, the group's first mill, which produces some 260,000 tons of pulp each year, as well as decor, coated, and tissue papers; Setubal, with a capacity of 500,000 tons of pulp and 275,000 tons of paper, including high-quality writing and printing papers; and Soporcel's Figueira da Foz site, which boasts a capacity of 500,000 tons of bleached kraft pulp and a paper product line of more than 7,000 items. Publicly listed since the early 1990s, Portucel has nonetheless remained under the control of the Portuguese government, which holds a 55 percent stake in the company. Since the end of 2003, the government been seeking a buyer for up to 30 percent of Portucel in a move to edge the company toward full privatization.

Eucalyptus Pulp Pioneer in the 1950s

Portucel-Empresa de Celulose e Papel de Portugal, S.A was established in the town of Cacia, Portugal, in 1952 for the purpose of producing wood pulp for the European paper industry. By 1953, the Cacia mill was already in operation, producing raw pine pulp. Yet Portucel had already begun preparations for the launch of a new type of wood pulp based on eucalyptus trees.

Eucalyptus presented a number of advantages over traditional woods for the pulp and paper industry. Trees grew quickly and were capable of producing new trees from stumps after the original tree had been cut down, enabling a single tree to be used up to three times. Eucalyptus pulp also had shorter fibers, producing stronger and higher-quality papers. By 1957, Portucel had launched production of eucalyptus-based pulp, becoming the first company in the world to produce sulphate-bleached eucalyptus pulp for kraft paper market.

During its early years, Portucel concentrated its production efforts on the pulp market, supplying primarily European paper manufactuers. In the mid-1960s, however, the Portuguese government decided to extend its pulp operations into papermaking as well and in 1964 began construction of a mill in Setubal.

The new mill combined a pulp production unit, under Portucel, with an integrated papermaking operation placed under a new company, Industria Nacional de Papeis, later known as Inapa. Although Portucel eventually gained a shareholding of more than 35 percent of Inapa (before taking full control in 2000), the two companies remained separate businesses. Pulp production began in 1967. Paper production at the Inapa, fed through a direct connection to Portucel's pulp line, began in 1969. By 1972, Inapa had launched its first range of eucalyptus-based papers on the European market.

Portucel continued to expand and began producing other varieties of papers through subsidiary Gescartao, among others. While Inapa focused on high-quality papers, Portucel's own paper production targeted other markets, especially the packaging market, with a range of bleached and unbleached papers, kraft linings, and similar materials, including its popular Portoliner-branded kraft linings. The company's packaging production was eventually brought its Gescartao subsidiary. In support of its growing range, and in order to meet the demand for its pulp from the export market, the company installed a second pulp line at its Setubal site in 1978.

By the end of the 1970s, Portucel's cellulose pulp production had topped 500,000 tons, representing some 70 percent of all wood pulp production in Portugal. While much of that targeted the export market, a rising share of the group's pulp production was by then already absorbed by its own paper production. At the end of the 1970s, Portucel's paper production, including the group's shares in other paper producers such as Inapa, included 200,000 tons of paper and 120,000 tons of packaging materials.

Privatization Process for the New Century

The Portuguese paper industry continued to expand during the 1980s. Inapa opened a second paper mill in 1980 and that year launched Portugal's first branded line of writing papers, Inacopia. The 1980s also saw the emergence of a new Portuguese paper force, Soporcel, which began construction on a pulp and paper mill in Figueira da Foz. The first phase of the site was completed in 1984, and Soporcel began pulping operations. Soporcel, half owned by the Portuguese government, also took on a major shareholder, Wiggins Teape (later Arjo Wiggins), which acquired nearly 43 percent of the young company in 1985. In 1991, Soporcel inaugurated its first paper production. Soporcel expanded its mill in 1995, reaching a capacity of 330,000 tons. With the addition of a second production line in 2000, the Soporcel site became the largest single mill on the Iberian peninsula.

Starting in 1988, Portucel launched its own upgrade program. This involved shutting down the original Setubal pulp line and boosting the capacity of the larger number two line. At the same time, the company installed new state-of-the-art waste and environmental protection systems.

On the other side of the Setubal site, Industria Nacional de Papeis was merged together with its coating subsidiary, Parel, to form Papeis Inapa in 1987. Inapa, whose operations had been brought steadily closer to those of Portucel, was also preparing to triple in size with the launch of a third paper mill, PM3, in 1990.

In this way, Portucel moved closer towards its goal of becoming a major integrated pulp and paper company in Europe. By 1990, Portucel's own paper operations claimed some 37 percent of its pulp production--the addition of Inapa's operations pushed the group's pulp integration past 50 percent. Fueling this growth was the group's emergence as a major forestry business, with more than 100,000 hectares of Portuguese forest land under its control.

Yet bigger changes lay in store for Portucel in the new decade. At the beginning of the 1990s, the Portuguese government began formulating plans to exit many of the domestic industries it controlled in order to allow them to better compete in an international market. The European Community was itself set to enter a new era in 1992, when trade barriers among member nations were scheduled to fall. The paper and pulp industry had become one of the most vibrant and vital in the Portuguese economy, making the privatization of the sector a delicate process.

Nonetheless, Portucel took the first step in the process in 1990 when it converted to private limited company status. By 1993, the company readied itself to go public, with the government listing some 13 percent of Portucel's shares on the Lisbon Stock Exchange. As part of that offering, the company's name was changed, to Portucel Industrial--Empresa Produtora de Celulose. The privatization process continued into mid-decade, as the group took on a major shareholder, Portuguese industrial group Sonae. That company became Portucel's largest single shareholder other than the government, which maintained control of some 55 percent of the company.

Commanding 14 percent of the world market for eucalyptus pulp by 1995, Portucel emerged as one of the country's largest businesses, accounting for some 2 percent of total Portuguese exports. As such, the company remained of vital importance for the country, and the Portuguese government, a situation that ultimately served to slow down the privatization process. The next step, however, was achieved at mid-decade when the company announced plans to sell off its Gescartao packaging materials operation, which represented more than 30 percent of group sales. That plan was carried out in 2000, when Spain's Europac and Sonae joined together to pay the equivalent of $48 million to acquire 65 percent of Gescartao. The remainder was spun off in a public offering.

In the meantime, the Portuguese pulp and paper industry continued to take shape. In the late 1990s, the Portuguese government flirted with a merger between Portucel and Spain's Ence, a move that would have created the largest pulp and paper group in Europe. After that deal foundered, however, the government turned its intention instead toward consolidating the domestic market. In 1998, a new holding company was created, called Papercel, combining the government's shares in both Portucel and Soporcel. In order to provide liquidity for the rest of Soporcel's shares, that company was then listed on the Lisbon Stock Exchange in 2000.

By then, Portucel at last took full control of Papeis Inapa, paying some EUR 90 million ($88 million) to take over its Setubal partner. That purchase led to the announcement in December 2000 of an offer by Portucel to acquire Arjo Wiggins' remaining 40 percent stake in Soporcel. That deal, along with a second, concurrent deal to acquire the Portuguese government's stake in Soporcel as well, was completed in 2001. Portucel then became one of Europe's largest pulp and paper operations.

Further Reading:

• O'Brian, Hugh, "Portucel Views a Privatized Future," Pulp & Paper International, October 1990, p. 81.
• Wise, Peter, "Portucel details plans," Privatisation International, March 1995, p. 5.
• ------, "Rivals Square up for Portucel," Financial Times, July 29, 2003, p. 26.
• ------, "Revolt Sparks Portucel Rethink," Financial Times, November 3, 2003, p. 30.

Source: International Directory of Company Histories, Vol.60. St. James Press, 2004.

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