TOKYO (Nikkei)--Nippon Paper Group Inc. (3893.TO) plans to...

TOKYO (Nikkei)--Nippon Paper Group Inc. (3893.TO) plans to purchase Australia's third-ranked paper manufacturer for 600 million Australian dollars, or about 36 billion yen, in one of the biggest overseas acquisitions yet by a Japanese paper producer, The Nikkei reported in its Monday edition.

Faced with peaking domestic demand, Nippon Paper is taking advantage of the strong yen to build its presence overseas.

Nippon Paper will buy all shares in Australian Paper from parent PaperlinX Ltd. (PPX.AU) by May, funding the purchase with bank loans and by issuing commercial paper. Of Australian Paper's four domestic paper mills, Nippon Paper will acquire the two main facilities, which are responsible for more than 80% of output.

The bulk of Australian Paper's products are sold in Australia. Known for its printing and publishing papers, it is the leader in that market with a 25% share. For the fiscal year ended June 2008, Australian Paper rang up sales of roughly Y55 billion and logged an operating profit of around Y2 billion. PaperlinX had been searching for a buyer for Australian Paper as part of efforts to consolidate operations.

Australia consumes 4 million tons of paper a year, roughly one-seventh the amount used in Japan. Still, demand for printing and publishing paper there has been growing at an annual rate of 3% and is seen expanding in the future.

Nippon Paper, Japan's second-largest paper producer, currently generates 10% of its sales abroad. By 2015, it aims to lift that proportion to 30% and break into the top five among global paper companies. To this end, it has been exporting and taking small stakes in foreign firms to date.

The latest move is Nippon Paper's first big acquisition.

Consequently, Nippon Paper will leap up one spot in global sales to the eighth position, drawing closer to rival Oji Paper Co. (3861.TO), which is sitting in sixth. And by using Australian Paper's sales channels, the company hopes to expand its exports as well as lower costs via economies of scale for materials purchasing.

Demand for paper has plateaued in Japan, with the market seen shrinking 8% in 2009.


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