Weyerhaeuser Co. and Canada's Domtar Inc. have agreed to bring together their fine-paper businesses, forming what would be the biggest supplier of uncoated freesheet paper in North America, the companies announced in mid-August.

According to published reports, Weyerhaeuser will spin off its fine-paper business into a new publicly traded company, which would then exchange shares for those of Domtar.

Current Weyerhaeuser shareholders will own 55% of the new company, and Weyerhaeuser Company will also receive $1.35 billion in cash.

Weyerhaeuser put the value of the deal at $3.3 billion before synergies.

The companies expect approximately $200 million in synergies a year within two years, achieved through "process optimization," reductions in transportation, and lower costs for sales and administration. It will cost $100 million to generate the projected savings.

Raymond Royer, Domtar president and chief executive officer, will lead an organization of nearly 14,000 employees. It will retain the Domtar name and be headquartered in Montreal, with operations based in Fort Mill, S.C. Weyerhaeuser's fine-paper business consists of 10 primary pulp and paper mills, converting, forming and warehousing facilities and two sawmills.

The transaction is expected to close in the first quarter of 2007, Domtar said. Completion is contingent on antitrust approval and the receipt of a favorable tax ruling from the Internal Revenue Service. Domtar's shareholders must also approve the deal.

"This important milestone transforms Weyerhaeuser into a company with a more focused business portfolio," said Steven Rogel, chairman, president and chief executive of the forest-products company.

"With this announcement, we can now resume our previously authorized share repurchase program," Rogel said in a statement.

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