Strategic & Financial Arguments(TM)

for the pulp and paper industry worldwide

October 2016

Participating as industry experts in pulp and paper financing and M & A deals around the world for over two decades, we continue to see the same mistakes made over and over. This newsletter is designed to help you avoid costly mistakes we have seen others make. We will be giving you one or two points each month to help improve your performance.

A refuge in the coming storm?

First, you might ask, "What coming storm?" Well, how about a stock market that by some accounts is overvalued (or is being propped up by artificially low interest rates), a saber-rattling Russia, a Brexit exercise to be completed and a US presidential race that defies description. On top of that, just before I sat down to pen this column, I read that Bob Dylan has won a Nobel Prize. What's next--Sam Adams Brewery winning the prize in chemistry? Can 2016 be any more nerve-wracking?

Back around the turn of the century, ancient history for some of you, we had a little stock market collapse caused by a wild west investment bubble in the internet. I remember then that Hanson plc ran some interesting ads in the financial magazines. If you don't follow Hanson, it is worth noting that Hanson makes bricks, operates cement plants and is generally invested in building materials. The theme of these ads was simply this: all this high valuation internet stuff can go up or go down, but we always need buildings.

So, back to the coming storm. No matter what happens, we always need paper. In fact, if things get bad enough (internet disrupted) we will need more paper.

Two items come to mind, one current, one historical.

One of the problems in Venezuela at the moment is the extreme shortage of toilet paper. In the popular press, one reads this seems to be as big a problem as the shortage of food. I find this somewhat surprising, for when I was a kid on the farm, we had two items at our fingertips for this activity--corn cobs and old Sears & Roebucks catalogs. Nevertheless, modern humans, even in wretched conditions, apparently need toilet paper.

The historical reference is the siege of Vicksburg, Mississippi in the spring of 1863. The newspaper publisher ran out of newsprint and printed the paper on the backside of rolls of wall paper.

My point is, in times of trouble (or a coming storm), it just may be pulp and paper manufacturing assets may be more highly valued by society. Something to think about as you do your job as an analyst in this industry.

If you have a casual question or a major deal, call me on my personal cell phone - 404-822-3412 or email me at jthompson@taii.com. We are here to help.

Sincerely,

Jim Thompson, CEO
Talo Analytic International, Inc.

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