312-097-1

AntalisMAP(A):

MergingtoManageMarketTurbulence

This case was written by Bertrand QULIN, HEC Paris, as a basis for class
discussionratherthantoillustrateeithereffectiveorineffectivehandlingofa

managerialsituation.Theauthormayhavedisguisedcertainnamesandother

identifyinginformationtoprotectconfidentiality.

2012 HECParis&BertrandQulin.Nottobeusedorreproducedwithout

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312-097-1

AntalisMAP(A):
MergingtoManageMarketTurbulence

Disclaimer:ThiscasestudywaswrittenbyBertrandQulin,ProfessoratHECParis,withthesupportand
assistance of Jonathan Hayes (HEC Doctorate student). Its primary purpose is to serve as an analytical
framework for class discussions. In no way does it seek to evaluate the relevance or efficiency of the
management practices and choices described. The accuracy or completeness of data and information
presentedisnottheresponsibilityofcompaniescitedherein.

Acknowledgments:ThisprojecthasreceivedfinancialassistancefromtheHECFoundation(PMP2011).
TheauthorwishestoexpressgreatthanksandappreciationtoStphaneCourtot,PierreDarrot,Andrew
Harvey,PascalLebard,HervPoncin,andGillesRaynaudforalltheirhelpandcooperation,withoutwhich
thispublicationwouldnothavebeenpossible.
SpecialthankstoThanhHLBargasforherexcellenttranslationandeditingjob.

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Outline

Introduction

I.
Antalis:AMultiFacetedB2BDistributor
A. AntalisBusinesses
B. AntalisGeographicScope

II.
StayingonCourseintheStorm
A. TheEuropeanGraphicPaperMarket
1.PaperProducers
2.PaperDistributors
3.AntalisMainCompetitors

B. TheFrenchandEuropeanPackagingMarkets

III.
TheMergerwithMAP:StrengthinUnity

ListofFigures

Figure1:AntalisBusinessUnitsin2007
Figure2:EuropeanGraphicPaperConsumption20052008
Figure3:EBIDA/Sales20052009
Figure4:EuropeanPulpandPaperProfitability
Figure5:EuropeanPaperDistributionMarketin2008
Figure6:MRealsCostStructurein2008
Figure7:PaperandpaperboardbalanceinEurope20072008
Figure8:NumberofPaperandBoardMillsandBoardProductioninEurope19912010
Figure9:ExamplesofPaperPricesinEuropeDec.2001Dec.2010
Figure10:MonthlyAveragePulpPrices(NBSK)20002010
Figure11:DistributionMarketConsolidationovera10YearPeriod
Figure12:SalesofEuropeanDistributors
Figure13:BreakdownofMaterialsinFranceforPackaging2007(12.8Milliontons)
Figure14:PaperBasedPackagingValueChain
Figure15:SalesofFrenchPackagingMerchants
Figure16:PaperDistributorMarketin2007(in000tons)
Figure17a:SequanasNetDebt20062009
Figure17b:AntalisNetDebt20062009
Figure18:BreakdownofAntalisSales
Figure19:EvolutionofAntalisSales20052008

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Introduction

SeatedinhisofficeonthetopfloorofBuildingB,PierreDarrotassessedhispastsixyearsattheheadof
Antalis: six years rich in new developments, during which time he had managed to stay at the helm
despitechallengingmarketconditions(generaldeclineinpriceandvolume),thusenablinghiscompany
tomakethemostofthesituationthroughitspositioningasanindependentdistributorandajudicious
acquisitionstrategy.Herememberedthefirstmonthsof2001whenhehadjoinedtheGroupinthemidst
ofcrisis,andwasconfrontedwithanoperatinglossof40millionEuros.Decisionsbyformermanagement
teams to integrate some twenty or so different European companies into a highly centralized matrix
organization were a complete failure: loss of reference points and corporate identity, lowered client
confidenceandlackofreactivityallresultedindemotivatedlocalteams.ItwasuptoPierreD.toreverse
thisdownwardtrend.ByrefocusingsalesforcesonseveralkeybusinessunitsPrintandOfficeandby
restructuringresponsibilities,notablyatthecountrylevel,Antalisrecoveredthenextyearwithapositive
operatingincomethatcontinuestoprogresstothisday.

Pierre D. was optimistic about his accomplishments for good reason. After six months of intense
negotiations, Antalis had just finalized its merger with MAP Merchant Group. As soonastheEuropean
Commission cleared the transaction, contracts were signed and handshakes exchanged. This merger
betweenthen3andn4giantsofEuropeanpaperdistributionwouldenableAntalistoachievecritical
massandconsolidateitsEuropeanmarketpositionsallthewhiledevelopingnewgrowthopportunities.
The newly formed Group would create great synergies, with Antalis becoming n 1 in Europe and n 4
worldwideinB2Bpaperdistributionandpackagingproducts.Inamarketbesetbychronicoverproduction
and price pressures, this acquisition occurred at a propitious time and provided Antalis with the
opportunitytoenhanceitscompetitiveedge,evenif,asPierreD.isfullyaware,thehardestpartisyetto
come.

Usingtheinformationinthecasestudy,evaluatethefollowingissues:
Antaliscompetitiveposition,
Itseconomicmodelandpotentialevolutions/prospects,
TherationalebehindthemergerwithMAPandthesynergiesgenerated,
Futurepathsforgrowth.

I.
Antalis:AMultiFacetedB2BDistributor

Establishedin2000,AntalisisaB2Bdistributorofpaperandpackagingproducts,promotionalgiftsand
visualcommunication.ItisafullyownedsubsidiaryofSequanaCapital,aFrenchinvestmentfund.

SequanaCapital
SequanaCapitalisamajorplayerinthepaperindustry,oneoftherareverticallyintegratedgroupsinthis
market.ItnotonlyproducespaperthroughitssubsidiaryArjowiggins(32%oftotalsalesin2008),butalso
distributes paper through Antalis (68% of total sales in 2008). After years of being a familyowned
business, with shares predominantly held by the Agnelli family, Sequanas corporate capital structure
evolved. Since 2009, its shareholders include Exor (26.6%) and DMLD (21.8%); the remaining (50.6%)
shares are publicly traded on the primary market in Paris. Historically diversified (assets held in the
productionandtradeofBurgundywinesAntoninRodetorinfundmanagementPermalGroup),this
holding underwent major strategic concentration in late 2007 to focus its activities exclusively on the
papermarket.

Antalis
As a distributor, Antalis occupies an important, even necessary, role in the producerconsumer paper
supply chain. Producers transform pulp that they manufacture or buy, then distributors supply the
finished paper products to customers with whom they have woven strong ties over the past decade.
Distributors play a strategic role because on the one hand, their understanding of the market enables
them to guide and advise their clients in the choice of products that respond precisely to the latters

312-097-1
needs,andontheotherhand,theirabilitytoguaranteerelativelyshortdeliverytimes(generallyJ+1,or
sometimessamedaydelivery)helpcustomerstooptimizeinventorylevels.

To serve their customers efficiently and with the hopes of retaining them, distributors offer numerous
servicessuchas30daypaymentterms,24hoursamplemailing,andthepossibilitytomodifyordersor
return delivered goods within 8 days, 24hour delivery or twiceaday delivery in the Paris region
CustomerrelationshipmanagementiskeyinthedistributorbusinessandAntalisisparticularlyattentive
to this factor: in general, approximately 30% of its customers meet with its salespeople more than 20
timesayear,and25%meetwiththem10to20timesayear.Theremaining45%purchaseinbulk,so
meet with Antalis sales forces less than 10 times a year. In addition to these ongoing facetoface
meetings,tofurthernurturetheircustomers,Antalissalesforcescommunicatethroughtelephonesales
callsandtelemarketingcampaigns.

In 2009, Antalis succeeded in launching an ecommerce platform for its product catalogue, allowing
customers to place their orders online at anytime.Thisdrasticallyshortenedtheordertakingprocess,
andtherefore,reducedorderleadtimes.Likewise,itminimizedthepossibilitiesforerrors.Antaliswasthe
firstdistributortooffersuchaservice.

Since its beginning, Antalis, acting as a central purchasing organization, has always attached much
importance to its status as an independent distributor. The companys executives attribute its success
partly to this very independence that strengthens Antalis bargaining power visvis upstream
businesses. Independent distributors purchase their supplies in bulk from various national and
internationalproducerstonegotiatemorefavorableprices,termsandconditions.

Some distributors are more vertically integrated, that is, they are affiliated with a production group or
with independent producers. This is also the case with Antalis, whose holding company, Sequana, also
owns a paper producer (Arjowiggins, ranked 7th worldwide). Certain executives would like to see a
tighterverticalintegrationbetweenthispapermanufacturingcompanyandAntalis.However,whilesuch
integration could potentially be beneficial for Sequana (system optimization yielding a whole being
greaterthanthesumofitsparts),andjustintimelogisticscanperhapsbejustifiedatthesystemiclevel,
there is no guarantee that synergies can actually be realized. After all, bringing together sales and
productioncansometimescreateconflict.Furthermore,asexplainedabove,Antalisactualsuccesscan
be explained by its independence, which allows it to take advantage of the chronic overcapacity and
overproduction that characterize the paper production industry. Its interest at this time is to let
producers manufacture and accumulate endofpipe finished products, inventory that they must
eventually liquidate. Another argument against tighter integration is that Arjowiggins does not own
integratedpulpfacilitiesandisjustasdependentonpulppricesasisAntalis.

A. AntalisBusinesses

AntalisoffersPaper,PackagingsolutionsandVisualCommunicationmaterials.Inordertoanticipateand
satisfyourcustomersdiverseneeds,thecompanyoffersafullrangeofproductsandservicesintwomain
sectors(GraphicpaperandPackaging),splitintofivebusinessareas:

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Figure1:AntalisBusinessUnitsin2007

In2007,priortoitsmergerwithMAP,Antaliswasorganizedaround5businessunits:

Print (60% of sales in 2008): paper and envelopes for printing, design, publishing and
communication.
Office(24%ofsalesin2008):paperandofficesuppliesforbusinessesintheprivateandpublic
sectors.
ThegroupalsodistributesCanonproductsinFrance.
Packaging(5%ofsalesin2008):productsandequipmentforpackagingandprotectingindustrial
goods.
Visual communication (2% of sales in 2008): adhesive materials, posters and displays for
pointofsaleadvertising.
Promotionalproducts(3%ofsalesin2008):personalizedpromotionalobjects.
Otheractivities(6%ofsalesin2008).

Ofthesefivebusinessunits,thePrintandOfficeandVisualCommunicationsaddressthegraphicpaper
market.
ThePrintandOfficesegmentscontinuetoensuremostofAntalissalesvolumeandareattheheartofits
business.Yetoperatingmargins,increasinglyunderpressure,weredecreasingprogressively.ForthePrint
business, more precise market segmentation can perhaps rationalize operational costs and ultimately
ensure profitability. This activity depends largely on Antalis bargaining power with its suppliers, so
consolidation with upstream operations would be harmful. As for the Office business, it has been
confronted since 2004 with a decline in demand for office supplies (both in volume sales and sales in
value).ThissituationisexacerbatedbyconsumerspreferenceforsupplierssuchasLyreco,OfficeDepot
orStaplesforwitch,paradoxically,paperisoftenbutalossleader.

Moreover, end consumers also order increasingly on the Internet in this market segment where high
brandvisibilityisessential.WhileAntalisproposesanimpressivechoiceofpaperproductsinitsextensive
catalogue,somehaverecentlyarguedthatthisbroadarrayofproductsisadetrimenttoaclearcompany
messageandawelldefinedcompetitivepositioning.Inthiscase,consolidationofcertainproductfamilies
shouldbefavoredtoenhanceAntalisoverallproductoffering,makingisclearerandmorevisible.

ComparedtoAntalisothertwobusinesses,VisualCommunication,PackagingandPromotionalProducts
contributesignificantlylesstothecompanysfinancialresults.However,theirsalesincreaseatasteady
paceandprofitmarginsarehigher(cf.Appendix1).

Figure2:EuropeanGraphicPaperConsumption20052008

The Visual Communication business that targets, for example, the advertising sector with materials for
pointofsaleadvertising,hasaspecializedsalesforcepromotingnothinglessthanleadingproducts.The

312-097-1
Packagingsegmentisanotherexampleofthisverysuccess.Withacatalogueof1,500products,Antalis
250salespeopleserve35,000customersthroughoutEurope.Profitabilitymarginsaresignificantlyhigher
thanthoseofothermoretraditionalbusinesses.ThePackagingbusinessprovidesprofessionaladviceon
products and supplies standard or custom packaging products to industry. The offering includes both
packaging and protection materials for transported goods. These products range from Kraft paper, to
paperboard boxes and bubble wrap, to anticorrosion protection, and even to bespoke logistics and
technicalsolutionsfortheexportmarket.Antaliscanoffercustomspecificpackagingthankstoitsteam
ofqualifiedengineersinitsinternalPackagingDecisionCenterwhoworkwithstateofartCAD(Computer
AidedDesign)totailorsolutionsthatmeetprofessionalrequirements.Althoughthemarketforpackaging
materialsinEuroperemainsratherfragmentedandnoclearleadersemerge,theelongationoflogistics
chains, combined with the importance of road transport, promises interesting perspectives for this
business.AsforthePromotionalProducts,itappearstobethemostdistantfromAntaliscorebusiness.
Dedicatedtothemarketinganddistributionofpromotionalcorporategifts,itboastshighprofitmargins;
inspiteoftheseresults,though,somearguethatthePromotionalProductssegment,theoperationsof
which barely fall within Antalis scope of activities, diverts attention and resources away from the
companystraditionalcorebusiness.

In 2007, premerger, Antalis product mix was composed of 120,000 products including office, coated,
offset,carbonlessandluxurypaperandenvelopes.Itsclientportfolioincludedprinters,graphicdesigners,
publishers, advertising andcommunicationsagenciesforpaperproductsandspecializedretailers,large
corporations and government organizations for office supplies (paper and printer consumables). With
98%ofsatisfiedcustomers,Antalisenjoyedthehighestclientsatisfactionrateintheindustry.Thiscanbe
attributedinparttoitsefficientlogistics:thecompanymaintainedaninventoryof180,000tonsofpaper
in 80 warehouses. These warehouses are categorized as either central distribution centers such as the
one at MelunSenart (France) covering 42,500 m2, or regional distribution centers designed for
fastmovingproducts.

B. AntalisGeographicScope

PriortoitsmergerwithMAPin2007,Antalisoperatedin36countries,predominantlyinEurope(90%of
total sales in 2007), and held leading positions in France, Belgium, Switzerland, Turkey, Slovakia and
Poland.Thecompanywasalsopresentonthreeothercontinents:Asia,SouthAmericaand(South)Africa.
Whilethecontributionsofthesemarketstoperformanceandprofitabilityweremodestapproximately
9%ofAntalissales,theywereneverthelessstrategicinviewoftheirgrowthpotential.Withthisvast
global presence, Antalis generated close to 2 billion Euros in sales. Its 73 regional distribution centers
servedaportfolioof180,000customers.

312-097-1
Distribution centers are important, particularly to ensure sales from stocks;thistypeofsalerequires
adequate stock capacity to guarantee product availability in a vast customer zone. Customers benefit
fromoptimaldeliverytimes.Today,salesfromstocksinEurope(accountingfor55%ofvolumeand53%
of revenues in the paper merchanting market in 2007), spurred on by distributors, is widespread. In
contrast, sales from production is the sale of several tons of a specific type of paper in userdefined
sizes.Inthiscase,thedistributorspecifiesitscustomersneedsandselectsthemostcompetentproducer
to fulfill the contract. The producer then delivers the order directly to the customer, but bills the
distributor.

II.
StayingonCourseintheStorm

A. TheEuropeanGraphicPaperMarket

Following a slight improvement in sales in 2007 (+2.4%), the European graphic paper market declined
considerablyin2008.Volumesalesshrunkbymorethan4.4%.

Producers, wholesalers and distributors alike witnessed a downturn in sales. The decrease in demand
affected the entire paper sector and there were no signs of improvement ahead. European clients,
touchedbytheeconomicrecession,grewscarceovertimeastheyoptedtoconcentratetheireffortsand
resourcesinsteadonimprovingcashflow.Costs,includingpurchasesofofficesuppliesandconsumables,
werecloselymonitored.Fewereconomictransactionsledtofewerinvoices,contractsandadministrative
documents.Theseconjecturalproblemswereaggravatedbyequallypreoccupyingstructuralissues.

ThegrowingimportanceoftheInternetasadistributionchannelandcorporatedigitizationprojectsalso
inexorablyaffectedthepapersector.Newspaperandmagazineeditorsaswellasprinterssufferedfroma
letdowninoperationsbecauseofdifficultiesinthewrittenpressandbookpublishingsectors(decreasein
publications, growing use of digital documents, decrease in newspaper paging formats and design).
Likewise, graphic arts specialists were impacted by cost reductions in paper advertising (marketing
budget cuts and fund reallocation in favor of alternative media, particularly the Internet, and the
progressivedisappearanceofmailorders,replacedbyecommerce).

Consequently, further up in the value chain, office paper distributors were also affected by this
developmentofdigitization(electronicconversionandmanagementofdocuments),whichproliferated
forobviouseconomicreasons,butalsoinresponsetogrowingsocietalconcernsandexpectationsabout
environmentalissues.Finally,toworsenmatters,overcapacityonthepaperproductionmarketmadeit
difficultfordistributorstopassontheirowncostincreasestoendusers;thus,whiledistributorscosts
rosesteadily,thepricepertonofpapercontinuedtofallbecauseofoverproduction.

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Figure4:EuropeanPulpandPaperProfitability

Source:Poyry

Insummary,demandforgraphicpaperdecreased,regardlessofmarketsegment:volumesalesofgraphic
paperforprinting,corporateofficepaperandhouseholdprintingpaperdeclined.Distributorsales,like
producer sales, were seriously affected in an environment in which sale prices decreased while costs
remained stable or even increased slightly. This said, the European market situation was not uniform;
whiletheEnglish,FrenchandSpanishmarketswerestronglyaffected,withrecessionratescloseto6%of
volumesales,theSwissandGermanmarketsin2008stillenjoyedsomegrowth,albeitweak.

Figure5:EuropeanPaperDistributionMarketin2008

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Inthiscontext,industryplayersproducersanddistributorsalikereactedvehemently.

1. PaperProducers

Paper manufacturing is concentrated among a relatively small number of companies: five industrials
accountforover85%ofpaperproductionin2008.IntheEuropeangraphicpaperproductionindustry,
among the seven major actors, five are vertically integrated upstream, managing forests and/or
manufacturingwoodpulp(cf.Appendix7).

Pulp is the starting point in paper production and can be manufactured using mechanical or
semichemicalmethods,ordeinking(recycledpulp).Thepresenceofverticalintegrationinthisindustryis
perhapslinkedtothestrategicimplicationsofpulpprocurementanditscosts.Afterall,papermakersare
all exposed to the same systemic factors and share a similar cost structure in which raw materialsand
theirtransportaccountforhalfoftotalcosts.

Figure6:MRealsCostStructurein2008

Theindustryishighlycapitalintensive,astheproductionof500,000tonsofpaperrequiresaninvestment
ofapproximately500millionEuros.Costspertonofpapermanufactureddeclinemarkedlywiththesize
ofproductionplants,mainlybecauseofindivisibleresourcessuchascomputerizedcontrolequipment.To
reap the benefits from economies of scale, then, companies do their utmost to keep the machines
running.

However, overall European paper and paperboard consumption fell by 3.7% in 2008 (cf. Figure 7), a
declinethatacceleratedastheglobaleconomiccrisistookhold.

Figure7:PaperandpaperboardbalanceinEurope20072008

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To adapt to a weaker demand and to improve profitability, leading producers attempted to rationalize
productiontopreventtheexcessstockpilingofunwantedsupplies.TheEuropeanpapermanufacturing
industrythereforecloseddownunprofitableproductionmills,reducedworkforces,shutdownmachines,
madeinvestmentstoenhanceproductivityandevenbuiltrecyclingunitstominimizeprocurementcosts
andtheirassociatedenergybills.Intotal,over5%oftheproductionvolumeinEuropehasbeenclosed
downinthelastcoupleofyears.

Figure8:NumberofPaperandBoardMillsandBoard
ProductioninEurope19912010

In2009,thecompetitiveclimatedeteriorated.Early2009wascharacterizedbybudgetcutsinthemain
costcenters,suchaspulpandenergy,butbythesecondsemester,thesecostshadrisenagain,further
weakening producers in a bleak economy. Impacted by the sluggishness of European markets, the
profitability of producers acrosstheboard suffered despite scaleddown productions. Courtordered
liquidations multiplied. Even major actors were affected, with sales falling 525% (cf. Appendix 7). As
inventoriescontinuedtoaccumulate,paperproducerstriedtoselltheirproductswithpricesgoingdown
untiltheybarelycoveredthevariablecosts(inFrance,averagepaperpriceindexdecreased4%).

11

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Figure9:ExamplesofPaperPricesinEuropeDec.2001Dec.2010

InEurope(SwitzerlandandNorwayincluded),graphicandpackagingpaperconsumptionfellby4to5%.

Figure10:MonthlyAveragePulpPrices(NBSK)20002010

InFrance,graphicpaperconsumptiondecreased4.5%andthatofpackagingpaper,7.5%duringthesame
period. Imports regressed (10.5% in France), as did exports (12.7% for France). In response to this
marketslowdown,Europeanproductiondroppedby11.7%.Yetinspiteofproducerseffortstoadjustto
demand, in 2009, selling price indices for paper and paperboard receded sharply in 2009 and by
November,wasflirtingattheir2005level.

Similarly, from 20082009, recycled paper and cardboard prices declined by 50% and that of deinked
paper, by 40%. As prices continued to drop, costs followed an almost Vshaped curve. The pulp
benchmarkpriceindex(NBSK)fellfromMarch2008toMarch2009,butthenadoptedanupwardtrend
until the end of 2009; following the peak oil in 2008, when oil and gas prices fell, those of chemical
products required for papermaking decreased as well. Despite this upward trend, however, the annual
averageNBSKpulppricehaddecreased18%from20082009.

12

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2. PaperDistributors

Paper distribution was also a highly concentrated market; in 1998, seven actors shared 61% of the
Europeanmarket,andby2008,butfive(Antalis,PaperlinX,Papyrus,IgepaandInapa)accountedfor80%.
The structure of the wholesale market grew increasingly concentrated as these distributors sought to
intensifytheirmarketpower.Consequently,intheracetostrengthentheirsupplierandbuyerbargaining
power and at the same time develop their product offering and weaken the competition (actors with
alternative sales channels), leading distributors bought out their competitors. For instance, in 2007,
AntalisdivesteditsItalianbusinesstotheAustralianPaperlinX,whichinturnsoldtotheformeritsFrench
subsidiary,Axlium.Thatsameyear,themergerbetweenAntalis(n3)andMAPMerchant(n4),certainly
the biggest operation of the year, gave birth to a new European leader. In 2008, Lecta Group, with a
strongpresenceinFrancebutaweakerpresenceelsewhereinEurope,acquiredSecmarandintegrated
two companies, Malmenayde and Nord Papier. Considering these market movements, it seems that in
thefaceofchallengingconditions,leadingpaperdistributorsworkedhandinhandtokeeptheindustry
afloat.

Besidesthemarketconcentration,alsonotableinthisindustryisthechangeintheshareholdingstructure
ofseveraldistributors.StoraEnso,aleadingEuropeanpaperproducer,divesteditsdistributionsubsidiary
Papyrus to Altor, an investment fund. The founding shareholders of Sequana Capital Antalis holding
companysoldtheirsharestonewinvestors.

Figure11:DistributionMarketConsolidationovera10YearPerio

3. AntalisMainCompetitors

PaperlinX is an Australian distributor established in 2000 and quoted since April 17th of the same
year on the Sydney stock exchange. Its international expansion began in North America inJanuary
2001 with the acquisition of Spicer Paper, which enabled it to penetrate the American market.
ImmediatelyfollowingthisacquisitionwerethoseoftwoCanadianpapermerchants,CoastPaperin
May 2001 and Papier Turegeon in April 2002. PaperlinXs penetrated the European market in July
2002withthebuyoutofBunzlFinePaperintheUnitedKingdom,followedin2003bytheacquisition
oftheDutchBuhrmann,thelargestEuropeangraphicpaperdistributoratthetime.Buhrmannwas
quickly renamed PaperlinX Europe and became a major actor in the European graphic paper
distributionmarket.PriortotheMAPAntalismerger,itwastheEuropeanmarketleaderingraphic

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paperdistribution.PaperlinXhasageographicallydiversifiedportfolio,with66%ofsales(invalue)in
Europe, 19% in North America, andtheremaining16%inAsiaandOceania.ItsEuropeanportfolio
hasevolvedovertheyears:in2007,forexample,itdivesteditsactivityinFranceandboughtAntalis
Italian subsidiary. An integrated company operating in both production and distribution, PaperlinX
engagedindiscussionstodivestitsproductionbusinessinlate2008.In2009,NipponPaperacquired
thisactivityfor600millionEuros.

Papyruswasfoundedin1994bytheSwedishpapermakerStoraEnso,anditbecameitsdistribution
subsidiary. The group grew through acquisitions of its European competitors: the Dutch Scalia and
theFrenchPapeteriesdeFrancein2004,thentheGermanSchneidershnein2005.In2008,asStora
Enso sought to refocus on its core business paperproduction,PapyruswassoldtotheSwedish
investmentfundAltorEquityPartners.In2009,Papyrushas38warehousesand2,800employeesin
22countries.Itsells13brandsofgraphic(coatedandnoncoated),officeandspecialtypaper.

Figure12:SalesofEuropeanDistributors

Inapa, created in 1965, was an integrated Portuguese paper industrial until 2000, when it sold its
industrial assets to focus on paper distribution. Like its competitors, the group also accelerated its
growththroughdiverse,Europeanwideacquisitions,suchasthatoftheSwissBaumgartnerin2004
and the Belgian Olympia in 2005. Inapa adopts a clear positioning strategy: it only operates in
countries in which it ranks among the top 3. Therefore, it is present exclusively in 8 European
countries: Germany, Belgium, Spain, France, Luxemburg, Portugal, the United Kingdom and
Switzerland.ThemajorityofitssalesaregeneratedinGermany(54%ofsalesvalue)andtoalesser
extent, in France (19% of sales value). Between 2002 and 2006, Inapas competitive position in
France deteriorated steadily and sales spiraled downward, decreasing more than 37%. By
comparison, Papyrus Frances sales doubled during this same period (through acquisitions),
PaperlinXs dropped to zero (divestiture of Axlium to Antalis) and Antalis receded by only 7.6%;
despiteweakersales,AntalisstilleasilypreserveditsstrongleadershippositioninFrance.

IgepaisalargeGermangroupfoundedin1970andoperatesinmorethan20countries,almostallof
which are exclusively European (Turkey and Australia being the two exceptions). The group is an
independentgraphicpaperdistributor,wellestablishedinNorthernandEasternEuropewithoffices
in Germany, Denmark, Sweden, Norway, Finland, the Baltic States, Russia, the Czech Republic,
Slovakia,Bulgaria,Croatia,BosniaandSerbiaItisnoteworthythatwhilethegroupispresentinItaly
and in the United Kingdom, it is neither in France, Spain nor Portugal. Igepa works with 2,350
collaborators;itsproductportfolioof7,000referencesisofferedtosome40,000clientsandin2008,
generatedsalesof1.5billionEurosfor1.5milliontonsofpapersold.Today,thegroupisownedby
privateshareholders.

All in all, by 2008, the integration of paper production and paper distribution had appeared to be an
unsuccessful strategy for the five European leaders: Inapa and Papyrus were separated from their
production branches, Igepa never acquired one and PaperlinX discussed the possibility of divesting its
productionbusiness.Largeintegrateddistributorsseemedtobedisappearing.OnlySequana,withAntalis
and Arjowiggins, operated in both businesses, even if the two were not at all integrated and even if

14

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Antalisremainedindependentinitspaperprocurementpractices.Thissituationwasadefiniteevolution
inthepaperindustrybecausehistorically,inmostintegratedgroups,distributorsdependedonproducers
Papyrus relied on Stora Enso, MAP on MReal, Inapa Distribution on Inapa, PaperlinX on PaperlinX
Manufacturing(forfinancialinformation,cf.Appendix10).
Thesedistributorsproductandserviceofferingsdonotdiffermuchfromoneanother,withtheexception
of Antalis ecommerce solution, launched on the market in early 2009. All these major actors are also
presentinthepackagingmarket.

B. TheFrenchandEuropeanPackagingMarkets

The packaging business can be broadly classified by function. Primary packaging is the material that
envelopes, holds and is in direct contact with the end product, such as a bottle of water. Conditioners
offeringthistypeofpackagingoftenproposebothstandardandcustomsolutions.Secondarypackaging
usually groups the primary packages, as in the case of a 6pack of bottled water. Tertiary packaging is
usedforbulkshippingandhandling,suchasapalletizedunitloadofbottledwaterthatisdesigntopack
tightlyintocontainers.

Figure13:BreakdownofMaterialsinFranceforPackaging2007(12.8Milliontons)

Packagescanalsobecategorizedbythematerialfromwhichtheyaremanufactured:plastic,paperand
cardboard,glass,metalorwood.Themarketofferingisverydiversified:theproductmixiscomposedof
products of varying characteristics and made from different materials. This offering is designed to
respondtothespecificneedsanddemandsofendusers.

Figure14:PaperBasedPackagingValueChain

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Consumers of packaging materials are mainly industrials specialized in agriculture or in chemistry (for
health and beauty products). These consumers require varied product compositions such as glass
packaging materials (bottles, jars, pots) for perfumes, wine or other perishable food; plastic packaging
materialsforthesesameperishablesandforbeautyandhouseholdproducts;woodpackagingmaterials
for transportation (palettes) or cooperage; metal packaging materials for drinks or beauty products;
paper and cardboard packaging materials for multipurpose uses, ranging from fruit and vegetable
containers to cement bags for construction or to storage boxes for household appliances.
Paper/cardboardandplasticdominateinbothsalesvolumeandsalesvalue.

PackagingmerchantsinFrance,mostofwhicharealsoconditionersofferingcustompackagingsolutions,
areessentiallypositionedtosellasingletypeofproduct:storageandtransportationpackagingmaterials
made from paper or paperboard (Papyrus, Inapa, Kappa Carton France), glass containers (OI sales and
distribution France), or paperboard/plastic packaging materials for the food industry (VG Emballage,
HyperEmbal,Soretrac,Rescaset,Ovocom...).Incontrasttothesespecialists,amongthetop10,only
threecompaniesAntalis,CenpacandRajaaregeneralists.ItisnoteworthythatunlikeAntalis,whichisa
diversifiedretailer,Cenpac1andRajaareeretailers2andareemergingasincreasinglyseriouscompetitors
onthismarket.Theireconomicmodelassociatesonlinedistancesellingwithanaggressivepricingpolicy.

InFranceasinEurope,thisisanatomisticmarket.ThroughoutEurope,keyindustryplayerswithannual
sales of over 50 million Euros (Antalis, Cenpac, Raja, Papyrus, Inapa, OI Sales and Distribution) work
togetherwithbothmediumsizedcompaniesgeneratingannualsalesrangingfrom30to50millionEuros
(VG Packaging, Karpa Carton France, HyperEmbal, Soretrac, Rescaset) and familyowned specialists of
modestsize,with10to20millionEurosinannualsales(FidelH,Ovocom...).Duetotheatomisticnature
ofthemarket,andbecauseofstricterpurchasingpoliciesthatproducersimplementedinordertocope
with the gloomy economic climate, price pressures were expected to intensify. Sales growth through
price markups seemed unlikely, and in most European markets, it was feared that byeretailerswould
provokepricewars.

90%to95%ofdistributorsactivitiesoccurontheirdomesticmarkets.ThestructureoftheFrenchmarket
is identical to that of many other European markets. After three years of continuous growth, sales of
packagingmerchantsontheFrenchmarketregressedslightlyby0.7%in2008,buttheirsalesmarginrate
hasremainedsteadyoverthepastfiveyearsandwassuperiorto22.5%in2008.

Figure15:SalesofFrenchPackagingMerchants

AttractedtothehighermarginsbutatthesametimeconfrontedwiththeatomisticnatureoftheFrench
packagingmarket(withalargenumberofactorsinvolved),Antalisadoptedanacquisitionpolicyin2007.
InJanuary,itboughttheindustrialpackagingbusinessofVersel(4millionEurosgeneratedforAntalisin
sales in 2008), which was focused mainly on paperboard packaging. In April of the same year, it

1
CenpacisthedistributionsubsidiaryofanintegratedanddiversifiedgroupinthewoodbusinessfromtheGascogne
regioninFrance;itssalesmodelissimilartothatoferetailers.
2

Specialistsindistanceselling.

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integrated87newemployeesintotheAntalisgroupwiththeacquisitionofPaxor.Paxorsoldpaperboard
boxesandplasticstretchfilmtoindustrialcustomersandwaslocatedintheNordPasdeCalaisregionof
France.Itgeneratedsalesof28.5millionEurosforaprofitmarginof21.6%andanetprofitof712,500.
In 2008, the Paxor brand was renamed Antalis Packaging; this rebranding aimed to bolster Antalis
visibilityinthepackagingmarket.

III.
TheMergerwithMAP:StrengthinUnity

Inthepressreleaseannouncingthemerger,PierreD.mentionedthatthisunionwouldallowAntalisto
reinforce its leading position in all of its European markets, necessary for its future growth and for
servingitsclientsefficiently.Headded:thecreationofthisnewlycombinedgroupisamajoreventin
theindustry,whichcontinuestoconsolidate.ForAntalis,itisanessentialstepinitsdevelopment.

In2007,MAPsold1,432milliontonsofpaper;bothcoatedofficepaperandoffsetpaper,for1.4billion
Euros in sales. The company was well established in the Scandinavian countries (Denmark, Finland,
NorwayandSweden),intheBalticStates,inEasternEuropeandRussia.Itemployed2,414collaborators,
approximatelyhalfofwhomconstituteditssalesforce.Ithadstrongtieswithadiversifiedclientportfolio
of 50,000 loyal firms, including book, newspaper and publicity printing companies, distributors and
corporations. MAP has also an efficient purchasing department that successfully diversified its
procurementrisks(morethan100supplyplantswithacoregroupof10keysuppliers).Thisdiversification
isinterestingas,intheory,MAPwasMRealsintegrateddistributor,andyetMRealonlyaccountedfor
35%ofitsprocurementactivitiesin2006.LikewithArjowigginsandAntalis,itappearsthattheproducer
anddistributorsubsidiarieswerenotfullyintegrated.

Moreover,aswithitsprocurementoperations,MAPslogisticsorganizationhadalreadyprovenitsworth:
its distribution network consisted of 23 companies and 74 warehouses in 25 countries. Sound
managementofthelogisticschaincouldbeseeninthedecreaseofMAPsinventoryandtransportcosts
ofover133pertonin2004to112pertonin2006,andininventoryturnover,whichimprovedfrom28
to27daysoverthesameperiod.Theseresultsareparticularlynoteworthybecauseinthisindustry,on
average, logistics account for almost 50% of costs incurred. Finally, MAP was also a financially stable
companywithprofitabilitythathadimprovedoverthepast5years(EBITjumpedfrom0.25%in2002to
2.5%in2006)andwithcashflowsthathadremainedpositive(cf.Appendix3)duringthissameperiod.

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Figure16:PaperDistributorMarketin2007(in000tons)

In 2007, Antalis acquired 100% of MAPs shares and its sales of 1.25 billion Euros (adjusted after the
divestmentofitsBritishsubsidiary,PremierPaperLtd,asstipulatedbytheEuropeanCommission)for382
millionEuros.WhilethisacquisitioncausedAntalisdebttoballoonfrom380millionEurosin2006to771
million Euros the following year, the financial ratios of this new entity appeared reasonable and
amounted to: EV/Sales3 = 0,26 or to EV/EBITDA = 8.3 if the procurement agreement negotiated with
MRealatthetimeoftheacquisitionisconsidered.

With the MAP acquisition, Antalis doubled its market share. Indeed, Antalis and MAP were extremely
complementarygeographically:marketleaderin8countriespriortothemerger,Antalisbecameleaderin
15 countries after the merger and extended its coverage to 30 European countries (cf. Appendix 4). In
view of the risks of monopoly, the European Commissions approval of the merger was contingent on
AntalisdivestitureofoneofMAPsthreesubsidiariesintheUnitedKingdom.Followingthedivestment,
however,AntalisworkedhardtosucceedincompletelyintegratingMAPsUKoperations.

EconomicValue(EV)=marketcap+debt+minorityinterest+preferredsharestotalcashcashequivalents.

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Figure18:BreakdownofAntalisSales

Considering the merger, financial analysts forecasted Antalis 2008 sales to grow by 44%, as can be
brokendowninthefollowingmanner:

41.5 % representing scope effects and resulting directly from the annual consolidation of MAPs
accounts.Saleslossfromconsolidationwasexpectedtobeminimal.Furthermore,thankstothenew
entitysn1rankinginEuropeandtothefactthatMAPandAntalisoperatedindifferentcountries,
therewaslittleoverlapintheproductoffering.

2.5%representingactualsalesgrowth,basedonthepredictionofincreasesincorporateadvertising
andcommunicationbudgetsonwhichthepaperdistributionmarketisdirectlydependent.In2007,
analystsforecastedgrowthintheEuropeanadvertisingmarkettobe2.7%fornewspapersand3.7%
for magazines, a growththatshouldlogicallyhaveboostedAntalisperformanceYettheanalysts
wereoptimisticanddidnotforeseethecollapseindemandforpaperproductsin2008.

AlthoughAntalissalesdidnotgrowashadbeenforecasted,themergerwithMAPneverthelessequipped
Antaliswithnewoptionstocopewiththeunfavorablemarketforces.Purchasingandlogisticsweretwo
potential businesses where significant synergies could be created: in 2008 and 2009, these synergies
provedtobesubstantialindeed(cf.Appendix6).

Figure19:EvolutionofAntalisSales20052008

Coupledwithastrictcostreductionprogram,thesynergiesgeneratedagainof34millionEurosin2008.
Thiswascertainlyencouraging,especiallysinceoperationsinonlysevencountrieshadbeenintegrated
and those in the remaining six countries were yet to follow suit. The savings stemmed from the

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optimizationofpurchasingandcommercialoperationsandofthelogisticschainandinformationsystems.
Duringthefirstsemesterin2009,gainsontheseoperationsconstantlyyieldedrespectableoutcomes:

7millionEurosofsynergiescreatedbytheoptimizationoflogisticsandbackofficeoperationsin
theUnitedKingdom,Spain,CzechRepublic,PolandandRomania.
21millionEurosincostsavingsunderpinned

The final phases of MAPs integration in 2009, and the followthrough of the cost reduction program,
enabled Antalis to generate 19 million Euros in cost savings during the last semester. The company
succeededinrationalizingcostsandimprovingmargins(15millionEurosin2008and10millionEurosin
2009),notablybyoptimizingitscoverageofthePrint,OfficeandVisualCommunicationbusinesses;this
wasachievedthroughasimultaneousredesigningofproductportfoliosandtheimplementationofapush
strategy for packaging and Visual Communication products in the former MAP companies. In a
deteriorating economic context, then, this merger endowed Antalis with particularly powerful tools to
copewithmarketevolutions(cf.Appendix6).

This merger also enabled Antalis to position itself on highgrowth markets such as Eastern Europe and
Russia,andatthesametime,toextenditsambitionstotheGermanmarketwhereitiscurrentlyranked
butfifth.Henceforth,withdistributionplatformsinallborderingcountries,Antaliscanmoreeasilyinitiate
asustainedmarketattack;yetwouldthisbeastrategicmove?

Finally, it is important to note that in 2007, several key MAP executives joined the new entity led by
Pierre D. That both top management teams, as much at Antalis as at MAP, desired the clearing ofthis
merger partly explains the general success of the integration process. A merger of this magnitude was
unprecedentedforAntalisandforthepaperdistributionindustryforthatmatterandchancesarethat
itwillremainso.

ListofAppendices

Appendix1:AntalisFinancialContributionbyGeographicZonesSegments2008
Appendix2:FrenchPaperDistributionMarketin2007
Appendix3:KeyMAPRatios
Appendix4:Antalis:LeaderontheEuropeanMarket20062008
Appendix5:MarketShareofMainPaperDistributorsinEuropein2006
Appendix6:
EvolutionofCurrentOperatingIncome(COI)20072008
EvolutionofCurrentOperatingIncome(COI)FirstSemester20082009
Appendix7:
Top7EuropeanPaperGroupsIntegration/Diversification
GraphicPaperDivisionofMainProducersinEurope
Appendix8:
KeyFiguresforSequana20042009
KeyFiguresforAntalis20042009
Appendix9:
KeyFiguresforAntalisinEurope20042009
KeyFiguresforAntalisoutsideEurope20042009(Asia,SouthAmerica,SouthAfrica)
Appendix10:
PaperlinX:FinancialResults20082009
Papyrus:ConsolidatedIncomeStatement20072009
Inapa:FinancialResults20062009

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Appendix1:
AntalisFinancialContributionbyGeographicZonesSegments2008

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Appendix2

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Appendix3

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Appendix4

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Appendix5

MarketShareofMainPaperDistributorsinEuropein2006

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Appendix6

EvolutionofCurrentOperatingIncome(COI)20072008

Indicators

AmountinMillionofEuros
92

COI2007
Exchangerateeffects

Effectsofinflationoncosts

25

Volumeeffects

20

SalesdilutionmergerwithMAP

SynergiesmergerwithMAP

23

Improvementonmargin

15

Decreaseinstructuralcosts

20

COI2008

92

EvolutionofCurrentOperatingIncome(COI)
FirstSemester20082009

Indicators
COI2008(1stsemester)

AmountinMillionofEuros
52

Exchangerateeffects

Effectsofinflationoncosts

Volumeeffects

SalesdilutionmergerwithMAP

40

SynergiesmergerwithMAP

Improvementonmargin

10

Decreaseinstructuralcosts

21

COI2009(1stsemester)

39

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Appendix7

Top7EuropeanPaperGroupsIntegration/Diversification

GraphicPaperDivisionofMainProducersinEurope

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Appendix8

Source:SequanaAnnualreports

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Appendix9

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Appendix10

PaperlinX:FinancialResults20082009

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