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Atlantic Corporation Case Study Essay

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Atlantic Corp Case Study Atlantic Corporation One of America’s largest forest products/paper firms with sales of $6.5Billion in 1983 and a net income of $105 million. The case study revolves around Atlantic Corporation’s intention to add linerboard capacity. In order to achieve this goal, they started looking at viable solutions, including purchasing and acquiring mill and box plants instead of through construction and fabrication of new plants and equipment. This included the possible acquisition of Royal Paper’s “crown jewels”, that is, the Monticello mill and the corrugated box plants. Is the acquisition of Royal’s linerboard mill and box plants a sound strategic move? One of the solutions was to offer a purchase of Royal Paper’s …show more content…

Linerboard producers and Wall Street analysts expect the years following 1983 to have very good effects on the sales of linerboard due to strong demand, limited supply and negligible new capcity. The projected sales increase in linerboard is 7% as industrial production and real GNP increase with forecasted economic expansion; however the current linerboard industry will only increase by 1-2% leading to a projected price hike of 16% created by the difference between supply and demand. Linerboard makers are expected to operate at historically high levels of production as operating rates were forecasted to increase from 84% in 1982 to 99% in 1986. Profitability of the linerboard industry Despite the rise in operating rate in the linerboard industry, the prices are predicted to rise dramatically. This is because there are a limited amount of linerboard mills which cannot entirely cover the increase in demand. The high level of fixed costs and operating leverage combined with soaring prices ensure high profits for the linerboard industry. Synergy The acquisition of the Monticello mill will cover for Atlantic’s internal linerboard shortfall as the company is the only firm in the paper industry to be a net buyer of linerboard, at 150,000 tonnes of linerboard a year, from its

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