OREANDA-NEWS. May 25, 2010. RusForest has signed a letter of intent with Nord Timber Group’s principal owners with the aim of merging the two companies by way of a directed share issue in RusForest, payable in kind, company said in a statement received by Lesprom Network.

The new company formed through the merger will be ideally placed to supply the domestic Russian market and the European market from North West Russia as well as the fast growing Asian and Central Asian markets from Siberia.

“This merger will transform RusForest into a major integrated Russian forestry company able to supply the global market with first class timber products from its unique forest resources in Siberia and in the Arkhangelsk region. Through the combination of RusForest and NTG we will achieve important synergies, which should increase profitability substantially and make the Company very attractive to the global investment community”, says Sven Hirdman, Chairman of the board of RusForest AB.

The merger is expected to lead to a significant reduction in administrative expenses as a percentage of total revenues.

The combined entity plans to grow to become Russia’s leading independent forestry and sawmilling company, with a mid-term harvesting target of 1.6 million cubic metres of roundwood, and sawnwood volumes of over 600,000 cubic metres. The combined entity intends to secure external financing in order to finance its ambitious growth plans.

“The challenge for Finnish and Scandinavian sawmills is to secure enough raw materials at competitive prices in order for them to continue to run their mills. If they can’t do that, they will simply have to close down. One of the main opportunities for the new combination of RusForest and NTG is to employ modern, state-of-the-art equipment from those European mills that has been forced out of business to increase our production. In a market where all main actors are price takers, our ultimate advantage is lower production costs and the fact that we control the essential raw material flows through a combination of own forest leases and harvesting capacity”, says Martin Hermansson, founder and shareholder of Nord Timber Group, Arkhangelsk.

The proposed merger is subject to the parties signing a binding Sale and Purchase Agreement (SPA), and to the shareholders of RusForest voting in favour of the merger at an EGM to be held within the coming months. The merger may also be subject to regulatory approvals.

RusForest is the only listed Russian forestry and sawmilling company, with operations based in Eastern Siberia and long term leases covering over 850 thousand hectares of forest land.