Otor S.A.

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Otor S.A.

70 Blvd. de Courcelles
Paris,
France
Telephone: +33 01 42 12 80 00
Fax: +33 01 42 27 96 48
Web site: http://www.otor.com

Public Company
Incorporated: 1969 as Cartonneries Menigault
Employees: 2,820
Sales: EUR 422.43 million ($534.3 million) (2004)
Stock Exchanges: Euronext Paris
Ticker Symbol: Sicovam: 006443
NAIC: 322211 Corrugated and Solid Fiber Box Manufacturing; 322121 Paper (Except Newsprint) Mills; 322130 Paperboard Mills; 322213 Setup Paperboard Box Manufacturing; 322231 Die-Cut Paper and Paperboard Office Supplies Manufacturing; 333993 Packaging Machinery Manufacturing

Otor S.A. is one of Europe's top manufacturers of corrugated cardboard, paper, and other packaging materials and systems. Headquartered in Paris, Otor operates from 27 sites in France, Germany, Switzerland, the United Kingdom, Finland, and Poland. The company's manufacturing operations include seven paper mills, eight corrugated board mills, and three cardboard box factories. Otor also operates eight recycling centers for the recovery of used paper and cardboard and a factory for the production of the company's own packaging equipment designs. Together, the group's operations produce more than 1.7 billion packaging items and more than 750 million square meters of corrugated cardboard. The company is also the world's leading producer of lightweight recycled packaging paper. Otor supports its manufacturing and distribution operations with a strong commitment to research and development. The group's R&D effort has enabled it to become a leader in packaging innovation in the European market. Listed on the Euronext Paris Stock Exchange, Otor has changed ownership in 2005 at the end of a long and highly contested battle for control between founder Jean-Yves Bacques and the European wing of U.S.-based investment group, Carlyle. In December 2005, the French courts gave the victory in that battle to Carlyle, which now controls more than 80 percent of the group. Otor generated revenues of EUR 422 million ($534 million) in 2004.

FOUNDING A FRENCH CARDBOARD SPECIALIST IN THE 1980S

In 1969, the Swedish paper group Billerud AB bought two French paper mills, establishing the foundation for the later Otor. Billerud combined the two sites into a single company. The first was a paper mill in Iteuil; the second, Cartonneries Menigault, was a mill specialized in the production of wallpaper and corrugated cardboard that had been in operation since 1907. The new company then took on the Menigault name.

Through the 1970s, Menigault continued to build a presence in France. In 1974, for example, the company built a new cardboard factory in Torigni sur Vire. The plant was called Menigault Normandie (later renamed as Otor Normandie). In 1976, the company added a new cardboard mill, in Carhaix-Plouguer, in the Brittany region. That subsidiary became Menigault Bretagne (later Otor Bretagne). The company also established a reputation for innovation in the paper market. In 1975, for example, Menigault became the first to develop card-board-based packaging for camembert cheese, traditionally packaged with a wood base.

By the second half of the decade, Menigault had become an important fixture in the French packaging sector. The company added new operations, notably through the 1977 takeover of Cartonneries Velin, a struggling packaging producer based in Remiremont, in the Vosges region. That subsidiary later became known as Otor Velin. The following year, Menigault acquired another company hit hard by the difficult economic period, Minguet & Thomas, located in Amiens. That company was later renamed as Otor Picardie.

Into the early 1980s, Billerud, soon part of what later became Scandinavian paper giant StoraEnso, began restructuring its operations and focusing on its forest products business. As a result, Billerud sold off its Menigault subsidiary to a new company, Cartonneries Associes, founded by Jean-Yves Bacques, in 1981. Joining Bacques was longtime partner Michèle Bouvier.

Bacques and Bouvier set out to build Cartonneries Associes into a French, and later European, cardboard packaging leader. The company quickly made its first growth effort, buying up Cognac-based cardboard maker Godard & Fils in 1983. That company had been founded in 1913 by Eugene Godard, and specialized from the start in the production of boxes and cardboard cases used for shipping sample bottles of cognac. By 1918, Godard had begun using corrugated cardboard as separators inside its boxes, before converting its box production entirely to corrugated cardboard. By the 1950s, Godard had begun shipping its packaging to the international market. The company expanded in 1970, building a factory in Chateaubernard. Following its acquisition by Cartonneries Associes, Godard was restructured into two businesses, Godard, which took over the company's cardboard production, and Etuis Cognac, which took over its production of luxury packaging for the cognac sector.

Godard also became the site of one of the first implementations of a new innovation by Cartonneries Associes, which had begun developing its own packaging machinery. Those efforts resulted in the launch of the "Flexotor" system, which enabled the pre-printing of packages. The company installed the first Flexotor machine in its Normandy region cardboard mill in 1984. In 1985, the Godard site added the flexotor machine as well, leading to a full-scale rollout of the system to all of the company's mills.

The company's French expansion continued through the 1980s. In 1986, the company built a new corrugated cardboard factory in Cabourg, in the Normandy region. Subsidiary Godard expanded with the formation of a new subsidiary in St. Michel, near Angouleme, which then acquired Papeteries Elji in 1988. This operation marked one of the later Otor's first entries into the market for recuperation of used paper and cardboard and the launch of its own recycled packaging products. The company's machinery division also helped the company grow, notably with the launch of new equipment automating the box-building process for the company's customers.

INTERNATIONAL GROWTH IN THE 1990S

The company changed its name to Otor in 1989, and continued its expansion, acquiring paper mills in Doubs and in Nantes that year. By then, too, the company had made its first move into the international market, through the acquisition of Ashton Corrugated from the United Kingdom's David S. Smith. The acquisition brought Otor two plants in England, located in Portbury, near Bristol, and Claycross, in the British Midlands. These acquisitions helped boost the company's total production to 300,000 tons of corrugated board and 240,000 tons of paper.

COMPANY PERSPECTIVES

After 20 years, we have become one of the European packaging leaders. Our success comes from a consistent policy of innovation and anticipation of the market: more sellable, more practical and more economical packaging capable of supporting all distribution functions from the distributor to the consumer.

Otor maintained its growth pace at the beginning of the 1990s. In 1990, the company launched a new system for the production of eight-paneled boxes, representing another major innovation by the group. The following year, Otor expanded its production capacity, building a new plant in the Dauphine region. In that year, also, Otor made its first entry into the recycling business, buying up its first recycling plant, Delaire Recyclage.

Otor's initial effort to grow internationally ran aground with the deepening European economic crisis in the early 1990s. By 1994, the company was forced to abandon this strategy, selling off its British plants. The company also restructured parts of its French operations, closing down its Menigault Centre & Ouest subsidiary. In the meantime, Otor's own difficulties had led to the company's agreement to sell 90 percent of its stock to rapidly expanding Svenska Cellulosa Aktiebolaget (SCA). The deal, worth the equivalent of more than EUR 300 million, would have boosted SCA's French position to more than 16 percent. Yet that deal fell through before the end of the year.

Otor resumed its expansion at mid-decade, launching a new subsidiary, Pinel Recyclage in Periers in 1995, and boosting its share of the recycled papers market in France. The following year, the company once again tested the international waters, this time in Poland, where it acquired the paper mill Silesianpap in Tychy. Otor then opened a cardboard production unit on the site. In that same year, the company added a cardboard plant in Belgium.

NEW OWNERS IN THE NEW CENTURY

The year 1997 marked a new milestone for Otor, as the company developed a strategy designed to transform it into a European corrugated cardboard leader. In that year, the company bought Papeterie de Rouen, based in Chapelle d'arbley, in France, from Finnish paper producer UPM Kymmene. That site, however, already had a troubled history, having gone through a succession of owners. At one point, the French government had been forced to rescue the Chapelle d'arbley mill from financial collapse. The purchase, and subsequent investments made by Otor to expand the mill, left Otor heavily in debt.

In 1998, Otor went public on the Paris Stock Exchange, becoming one of the few publicly owned cardboard producers. In that year, the company opened a new corrugated cardboard plant as part of its expansion of the Papeterie de Rouen. The company also began converting the Chapelle d'arbley site. Yet the massive investment needed for that project brought the group to the edge of a new financial dilemma.

Bacques and Bouvier found themselves under increasing pressure from their bank, Credit Lyonnais. By the end of 1999, the bank had threatened to cut off Otor's credit line if the company did not bring in cash from a new major investor. Credit Lyonnais brought Bacques and Bouvier into contact with American investment giant Carlyle, which had launched a European investment wing just two years earlier. With little room to maneuver, Bacques and Bouvier agreed to sell Carlyle a 21 percent stake in Otor for EUR 45 million. The deal saved Otor from bankruptcy.

KEY DATES

1907:: Cartonneries Menigault, a producer of corrugated cardboard and wallpaper, is founded.
1969:: Swedish paper and forest products group Billerud acquires Menigault and merges it with another French paper mill in Itreuil.
1974:: Menigault builds a new cardboard mill in Normandy.
1976:: A cardboard mill is added in Brittany.
1977:: The company acquires Cartonneries Velin, in the Vosges region.
1978:: The company acquires Minguet & Thomas, in the Picardy region.
1981:: Jean-Yves Bacques and Michel Bouvier form Cartonneries Associes and buy Menigault from Billerud.
1983:: The company acquires Godard & Fils, based in the Cognac region.
1987:: Two Ashton cardboard plants in England are acquired.
1989:: The name is changed to Otor.
1991:: The company acquires Delaire Recyclage and enters the paper recycling market.
1994:: The U.K. operations are sold.
1997:: The company acquires Papeterie de Rouen and the Chapelle d'arbley site and begins a massive investment to upgrade the plant.
1998:: Otor goes public on the Paris Stock Exchange.
1999:: On the verge of bankruptcy, Otor agrees to sell a 21 percent stake for EUR 45 million to Carlyle.
2000:: Carlyle exercises its option to acquire 90 percent of Otor, but Bacques and Bouvier refuse, setting off a five-year court battle.
2005:: Bacques and Bouvier resign from the board of directors and Carlyle takes control of Otor.

The acquisition of a minority stake was a departure for Carlyle, which ordinarily acquired outright control of its investments. Yet under terms of the shareholding agreement, Carlyle also gained the option to acquire up to 90 percent of Otor if the company failed to meet its financial targets in the period between 2000 and 2006. By 2001, after Otor failed to deliver on its promised profit levels, Carlyle decided to exercise its option to gain control of the company. Yet Bacques and Bouvier resisted the takeover; a small clause in the agreement required that authorization for the option had to come from the company's board of directors, which was, of course, controlled by Bacques and Bouvier. This set the stage for a five-year legal battle, in which Bacques and Bouvier sought to overturn the option agreement with Carlyle. In the end, however, Carlyle prevailed. Bacques and Bouvier resigned from the company's board of directors in 2005, and by the end of 2005, the French courts had confirmed Carlyle's right to take over the company.

Despite the uncertainty of its ownership, Otor had in the meantime continued investing in its future. The company added a new corrugated cardboard operation in Brittany in 2001. The company also emerged as a leading innovator in the production of new lightweight cardboards, as well as launching a new generation of its flexotor pre-printing system, enabling up to eight-color printing directly onto even lightweight cardboard and paper. Otor expected to maintain its growth as a European corrugated cardboard leader under its new owners.

PRINCIPAL SUBSIDIARIES

Otor Benelux; Otor Bretagne; Otor Dauphiné; Otor GmbH (Germany); Otor Godard; Otor Normandie; Otor Papeteire de Rouen; Otor Picardie; Otor Riquet; Otor Services; Otor Silesia (Poland); Otor Suisse; Otor Systems; Otor Velin; Otor UK; Etuis Cognac; Delaire Recyclage; Normandie Ondulé; Pinel Recyclage; Sarl Czulow; GIE Otor Investissement.

PRINCIPAL COMPETITORS

Jefferson Smurfit Group Ltd.; Stora Enso Oyj; Container Corporation of America; Kappa Packaging B.V.; D S Smith PLC; Constantia Packaging AG; Empaques de Carton Titan S.A. de C.V.; Samhall AB; Yule Catto and Company PLC; Papierfabrik Palm GmbH and Company KG; S.C.A. Packaging Ltd.