Plantations, poverty and power - Critical Information Collective

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credit crunch, unstable oil prices (which were high earlier in 2008, but are currently low) and the threat of
a world recession will affect how easy it is for companies to raise capital. Economic recession means
reduced consumption of paper globally. However, pulp and paper companies don’t only raise money
when they plan new projects such as new pulp mills or new plantations. Much of the finance that pulp
companies raise is not directly project finance. Financing comes from issues of shares or bonds as well as
general corporate financing.
Private equity funds have started buying up pulp and paper companies. Madison Dearborn Partners one of
the biggest private equity companies in the US owns stakes in Boise Cascade, Buckeye Cellulose,
Graphic Packaging Corporation, Packaging Corporation of America and Smurfit Kappa. 80 In 2005,
Cerebus Capital Management bought MeadWestvaco’s paper business for US$2.3 billion 81 setting up a
new company called NewPage. Stora Enso subsequently sold off its north American operations to
NewPage. 82
Since 2004, Finnish consulting firm Pöyry has organised a yearly event for private equity investors in
London. During Pöyry’s “private equity breakfast”, representatives of private equity companies meet at
Claridges Hotel to eat a traditional English breakfast while listening to Pöyry’s “views and perspectives
on the opportunities emerging throughout the forest industry value chain”.83
Private equity is based on capital raised from private sources rather than on the public stock exchange.
Private equity firms aim to buy companies cheaply, asset strip and sell as quickly as possible for as large
a profit as possible. Or, as Pöyry puts it, “The ownership time horizon of private equity is limited and
there is always an exit strategy in mind. Compared to traditional investment companies, private equity is
not a silent investor and actively influences the performance and strategic direction of management.” 84
If private equity firms were to start taking over large scale pulp operations and industrial tree plantations
in the global South, running them purely for short term profit, the social and environmental impacts could
be even more severe than at present.
Increasingly though, pulp and paper companies are selling off assets as a way of raising finance. In 2005,
for example, International Paper started to sell off the forests and plantations which provided its raw
material. Before the sale, International Paper was the world’s second largest private land owner. 85
International Paper’s sale of its forests and plantations reflects an industry trend. Pulp and paper industry
analyst Dennis Neilson notes that
“In recent years there have been many new investment funds and companies from Europe and North
80 Bernard Simon (2005) “Sector that’s suffered a bit of a pulping”, Financial Times, 28 June 2005.
“Portfolio”, Madison Dearborn Partners website, http://www.mdcp.com/portfolio.asp
81 James Politi (2005) “Cerberus to buy MeadWestvaco paper arm”, Financial Times, 19 January 2005
82 Vidya Ram (2007) “Stora Enso Finds American Exit Route”, Forbes, 29 September 2007.
http://www.forbes.com/markets/2007/09/21/stora-enso-newpage-markets-equity-cx_vr_0921markets04.htmlpartner=links
83 Cormac O’Carroll and Aestan Orstadius (2007) “Private equity breakfast with Pöyry in London”, Know-How Wire, Pöyry
Client Magazine, 2/2007.
84 Cormac O’Carroll and Aestan Orstadius (2007) “Private equity breakfast with Pöyry in London”, Know-How Wire, Pöyry
Client Magazine, 2/2007.
85 Jeremy Grant and Dan Roberts (2005) “Oil prices pump up costs”, Financial Times, 25 July 2005.