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Gold/Mining/Energy : Smurfit Stone Container Corporation (SSCC)
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To: MonteChristo who wrote (2)11/25/1998 11:42:00 AM
From: Michael Stavy  Read Replies (1) of 17
 
I put the SSCC Board under Gold, Mining, and Natural Resources because the pulp paper is a renewable natural resource. Because of over capacity, the price of pulp has been going down which has caused the earnings of STO to become negative. In addition, STO was highly leveraged in its expansion period. SSCC by closing down mills and getting economies of scale in the overhead will be more profitable in the future. I am assuming that pulp prices to rise(or at least stay steady) and SSCC will then pay off STO's debt. Interest rates are much lower now 7-8 and SSCC should be able to borrow at a lower rate and pay off STO's high yield (10-12) debt.

IP/UCC deal is also being done to consolidate and close down mills to reduce over capacity. This merger should also cause pulp prices to rise (or at least stay steady).

With the $330 million write off (I believe that this is the correct number), STO's earnings will be negative during Q4.

I don't have a price forecast for SSCC but I did post a financial analyst's earnings on the former STO Board.

I am following the STO Con Pre-E. It is a security of STO, a wholly owned sub of SSCC, not of SSCC. It does convert to SSCC at about 34. The dividends are in arrears and must be paid before STO pays any dividend to SSCC.

I will think more about this over the holiday.

Have a good holiday.
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