A Tear in the FoundationRestructuring at Scott Paper Company

Agenda Key IssueBackgroundAnalysis and AlternativesRecommendationConclusion

Key IssueA final restructuring plan is needed to address the following issues:

1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices

Key IssueA final restructuring plan is needed to address the following issues:

1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices

Critical

Key IssueA final restructuring plan is needed to address the following issues:

1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices

Critical

Implementation

Key IssueA final restructuring plan is needed to address the following issues:

1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices

Critical

Implementation

Forecast

Background

Early HistoryFounded in 1879Fully integrated paper company in 1920Developed a wide variety of tissue productsAcquired S.D. Warren in 1967

Background

Later LifeGrew to being the 8th largest paper company in the U.S.

Second largest tissue producer in U.S.Largest Worldwide with 15% M.S.

S.D. Warren accounted for 25% of sales

Background

Troubled TimesIn 1993, Scotts posted annual losses of $277 M.Over 3000+ workers had been laid offClose to $1 B in restructuring costsS&P downgraded their public bondsAlbert Dunlap was appointed as the first outside CEO to manage the companies turnaround

Background

Analysis & Alternatives

$131 B commoditized industryExtremely capital intensiveVery cyclical industry, inline with the economyScott’s was 3/4 in tissue and 1/4 in coated printing paper

Paper IndustryAnalysis & Alternatives

Restructuring costs of $490 M were announcedScott’s stock price had remained at $38Steadily deteriorating earnings since 1988Sales had dropped to their lowest in 4 years, where the industry had been growing

FinancialsAnalysis & Alternatives

Net cash flows from operations and investments declining (84% and 52% respectively)Since 1989, earnings from integration had declined well below earnings without ($193 difference in 1993)S.D. Warren’s products were projected to increase, which represented 58% of the paper industryTissue industry facing downward pressure due to increased competition

FinancialsAnalysis & Alternatives

Over 12,500 unionized employeesPoor relations throughout 1980sPotential $20.2 M in severance pay for 5600 employees3 different CEOs in less than 14 years Dunlap first CEO hired outside the firm

Human ResourcesAnalysis & Alternatives

1. Close down European OperationsUnionized workers only in N.A.Allow for exploration into emerging countries (BRIC)W. Europe and N.A. accounted for 70% of the global tissue marketMajority of costs still centralized in N.A.

AlternativesAnalysis & Alternatives

2. Sell Forestry DivisionVery few years where integration has been beneficial for ScottAccounts for bulk of capital investmentsMajority of unionized workersVery sensitive area for labour relations

AlternativesAnalysis & Alternatives

3. Sell S.D. WarrenCurrent book value of $1.6 BAccounted for 25% of total salesMore capital intensive than the rest of the businessPotential earnings with the upturn in coated paper products

AlternativesAnalysis & Alternatives

Recommendation

Exhibit 11 clearly shows no benefit to being integratedHighest paid workers in the industryAlready set aside $490 M for restructuring which can be used for severanceLack of efficiencies across the globeMore focus on core products: tissue and paper

Sell Forestry DivisionRecommendation

Sell Forestry DivisionRecommendation

296-048 Scott Paper Company

2 4

Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993

YearPrice of

NSWK Pulp

Earningswith

Integration

Earningswithout

Integration

1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1

Source: Company documents

Purchased by Benjamin Iannetta (iannettb@uwindsor.ca) on September 20, 2012

Sell Forestry DivisionRecommendation

296-048 Scott Paper Company

2 4

Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993

YearPrice of

NSWK Pulp

Earningswith

Integration

Earningswithout

Integration

1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1

Source: Company documents

Purchased by Benjamin Iannetta (iannettb@uwindsor.ca) on September 20, 2012

Sell Forestry DivisionRecommendation

296-048 Scott Paper Company

2 4

Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993

YearPrice of

NSWK Pulp

Earningswith

Integration

Earningswithout

Integration

1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1

Source: Company documents

Purchased by Benjamin Iannetta (iannettb@uwindsor.ca) on September 20, 2012

Sell Forestry DivisionRecommendation

296-048 Scott Paper Company

2 4

Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993

YearPrice of

NSWK Pulp

Earningswith

Integration

Earningswithout

Integration

1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1

Source: Company documents

Purchased by Benjamin Iannetta (iannettb@uwindsor.ca) on September 20, 2012

Sell Forestry DivisionRecommendation

296-048 Scott Paper Company

2 4

Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993

YearPrice of

NSWK Pulp

Earningswith

Integration

Earningswithout

Integration

1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1

Source: Company documents

Purchased by Benjamin Iannetta (iannettb@uwindsor.ca) on September 20, 2012

Sell Forestry DivisionRecommendation

296-048 Scott Paper Company

2 4

Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993

YearPrice of

NSWK Pulp

Earningswith

Integration

Earningswithout

Integration

1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1

Source: Company documents

Purchased by Benjamin Iannetta (iannettb@uwindsor.ca) on September 20, 2012

$432 difference

Conclusion

Critical: Sell downstream business and focus on upstream business. Implementation: Restructuring to be done in 3 years. Inform employees that it is not job cuts, rather product focusForecasting: Without the burden of forestry business, stock prices can be expected to go up with higher earnings

Wrapping It UpConclusion