January 26, 2012 / 2:40 PM / 7 years ago

UPDATE 2-Domtar to grow personal care business with European buy

* Acquires Attends Europe for $233.5 mln

* Says demand for incontinence products strong in Europe

* Deal expected to close in Q1

By Bhaswati Mukhopadhyay and Maneesha Tiwari

Jan 26 (Reuters) - Canadian paper maker Domtar Corp said it will buy diaper maker Attends Healthcare’s European business for 180 million euros ($233.52 million) to strengthen its personal care segment amid volatility in its core business.

Domtar, like Tembec Inc, has been grappling with weak selling prices and high input costs.

Tembec, which produces lumber, paper and pulp, posted a wider first-quarter loss on Thursday.

Domtar, one of North America’s largest producers of uncoated freesheet paper, bought Attends’ North American operations in August 2011.

Privately held Attends makes adult incontinence products, using fluff pulp — bleached softwood cellulose fiber used in incontinence products, baby diapers and feminine hygiene products.

The European acquisition gives Domtar worldwide ownership of the Attends brand, lowers its exposure to pulp and increases its exposure to hygiene products that are less cyclical than paper-based products.

“Right now they (Domtar) are 75 percent paper, 20 percent pulp and 5 percent personal care. I think they want that mix over time to be 60 percent paper, 15 percent pulp and 25 percent personal care or some other business,” analyst Paul Quinn of RBC Capital Markets told Reuters.

The acquired business has annual run rate sales of 140 million euros, said Domtar, which is buying Attends from UK private equity firm Rutland Partners.

Demand for incontinence care products in Europe is strong and the company plans to double earnings within the next five years, Chief Executive John Williams said in a statement.

With a large ageing population in Japan, Europe and North America, the market for adult incontinence products is growing. Analyst Quinn said this market was growing at 60 percent globally.

“When they bought Attends’ North American unit they said they would immediately be able to sell about 25,000-30,000 tonnes of fluff to them, and probably 40,000 tonnes over time. I think the same will be true for Attends Europe,” Quinn said.

Domtar, which has cash and equivalents of $461 million as of Sept. 30, 2011, said it will fund the deal with cash on hand.

“The total transaction values Attends Europe at 7.8 times its annual EBITDA of 23 million euros,” Domtar’s spokesman Pascal Bosse said.

The transaction is expected to close in the first quarter of 2012.

Domtar shares were up 39 Canadian cents at C$87.58 on Thursday afternoon on the Toronto Stock Exchange, while Tembec shares were down 22 Canadian cents at C$3.25.

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