M-Real Oyj

Revontulentie 6
FIN-02100 ESPOO
Finland
Telephone: (358) 1046 11
Fax: (358) 1046 94355
Web site: http://www.m-real.com

Public Company
Incorporated: 1986
Employees: 20,323
Sales: EUR 6.5 billion ($7.55 billion)(2002)
Stock Exchanges: Helsinki London Bavarian
Ticker Symbol: MRL
NAIC: 322110 Pulp Mills; 322121 Paper (Except Newsprint) Mills; 322130 Paperboard Mills; 322222 Coated and Laminated Paper Manufacturing

M-real Oyj—known as Metsä-Serla Oy until 2001—operates as a leading supplier of paper and paperboard and is Europe’s largest fine paper producer. The company offers a wide variety of products ranging from coated magazine papers used by magazine and catalog publishers to coated fine paper utilized in commercial printing. The firm also manufactures paperboard for consumer packaging used by the cosmetics, pharmaceutical, electronics, and food industries. The company’s holdings also include the Map Merchant Group, which offers products made by M-real and other merchants to over 50,000 customers throughout Europe. M-real was created in 1986 by the merger between Metsäliiton Teollisuus Oy and G.A. Serlachius Oy. Osuuskunta Metsäliitto, the Finnish forest owners’ cooperative, owns 38.5 percent of M-real.

History of G.A. Serlachius Oy

The history of what is now M-real begins in the 1860s, when a steep rise in the price of sawn wood in Europe made the exploitation of Finland’s gigantic timber reserves economical for the first time. Even now Finland is one of the most densely wooded countries in the world, with a majority of its land area covered by forest. An engineer named Knut Fredrik Idestam started building a groundwood plant in Tampere in 1865. Three years later, when he moved to Nokia to build a second and bigger plant, he invited his friend Gustaf Adolf Serlachius, a pharmacist, to manage the Tampere mill. In 1868, Serlachius moved on from there to Mänttä, to start his own mill for grinding wood into pulp. It was successful enough to finance the building of a paper mill, with two paper machines, at the same site in 1881. Nine years later, this wooden building was destroyed in a fire: Serlachius’s continuing prosperity enabled him to replace it with a brick and stone building containing three paper machines capable of turning out 5,000 tons each year. In 1913, the business, by then incorporated as a public company, came under the direction of the founder’s nephew, Gösta Michael Serlachius. In spite of the disruptions caused by World War I and then by the civil war which followed Finland’s declaration of independence from Russia, he pressed ahead with an expansion of the company, both by adding on a new plant at the Mänttä site—including a sulfite pulp mill in 1914 and a sulfite alcohol plant in 1918—and by acquiring other businesses, such as a saw mill at Kolho in 1916 and the Kangas fine paper mill at Jyväskylä in 1918. In 1917, Gösta Michael Serlachius acquired the Tampere Paper Board and Roofing Felt Mill, which Gustaf Adolf Serlachius had managed nearly half a century earlier. In the intervening years, it had passed through various hands, finally falling into bankruptcy when the delivery of a new corrugated board machine from Germany was delayed by the outbreak of World War I. The machine eventually arrived in 1920, and the mill, renamed Tako Oy in 1932, went on to produce a range of boards and building materials in its plants, some of which were used in the construction of the largest building in Tampere.

After 1918, and in line with the general trend in the Finnish forest industry, Serlachius abandoned the production of brown wrapping paper for the Soviet market, which was being torn apart by revolution, civil war, and foreign intervention, in favor of supplying newsprint to Finland’s new market in western Europe. During this period, Finnish forest products were still mostly of a lower quality than those of rival companies in Norway and Sweden. Still, Serlachius and the other Finnish companies prospered, even in this new, more demanding market, because the low valuation of the Finnish markka kept their export earnings high, even during the Great Depression, when the Finnish forest industries maintained continuous output through the use of plant and equipment modernized during the boom years of the 1920s. By 1939, Finland was the world’s leading exporter of paper.

Gösta Serlachius retained control of the company up to his death in 1942, when his son R. Erik Serlachius became managing director. The man who had overseen the expansion of the company into a large and diversified enterprise is commemorated in the Gösta Serlachius Museum of Fine Arts in Mänttä. This houses several hundred works of art collected by Gösta Serlachius or inherited from his uncle and passed into the hands of a fine arts foundation established in 1933. Gustaf Adolf Serlachius had been among the first patrons of Akseli Gallen-Kallela, generally considered Finland’s greatest painter, and Gösta Serlachius, who shared his uncle’s enthusiasm, assembled the largest private collection of this artist’s work, now the main feature of the museum.

At the time of Gösta Serlachius’ death, Finland was engaged in an alliance with Nazi Germany against the Soviet Union. In 1944, Finland surrendered to the Soviet Union, having failed to regain the lands—about 8 percent of its area—that it had ceded to Stalin after a brief war in 1939–1940. These two wars meant that the forest industry could not sell its products in Britain or the Americas, but it kept up production for its continental European markets. Some of the companies diversified: Serlachius began producing chemicals and switched from making newsprint to making printing paper during these years. Its plants in Tampere sustained some bomb damage and then had to contribute to the reparations demanded by the Soviet Union. These was also the further loss of land, which was a serious blow to the forest industry in general, since additional areas ceded to the Soviet Union in 1947 included 12 percent of Finland’s forests, 20 percent of its wood- and pulp-producing capacity, and 10 percent of its paper and paperboard capacity.

It did not take Serlachius long to recover from the impact of these events. The company was now producing a range of papers, as well as paperboard, and in the late 1940s it expanded production of parchment paper at Jyväskylä, began producing impregnated wood at Kolho, and started work on the installation of its seventh paper machine at Mänttä. Paperboard production at Tampere prospered as the pre-packing of goods in cartons for delivery to retail outlets became the norm in Finland. The company also profited from selling pulp to the United States and returned to making newsprint. Another boost for the company’s financial health was the fact that the prices of all kinds of paper products, as of other raw materials, rose sharply as the ending of rationing and the outbreak of the Korean War increased demand.

Finland’s openness to international economic cycles cut both ways: when prices fell and recession set in at the end of 1951, the forest industry’s expansion was slowed, and the levying of taxes on excess profits during the Korean War temporarily inhibited investment. Once the economy had recovered, Serlachius was able to begin production of copy paper and other special papers for technical uses at Jyväskylä and to modernize its plant at Tampere. In 1961, Serlachius began producing tissue paper using the eighth paper machine to be installed at Mänttä. This latest venture was so successful that another tissue paper machine was started up in 1965. The timber division of the company was also modernized, with the introduction of an automated saw mill at Kolho in 1963. In 1965, the company started to expand by acquisition as well as by internal growth, purchasing the Vammala plywood factory and the Lielahti mill, which produced dissolving pulp for use in the making of artificial silk. Serlachius’s capacity for producing cartons was expanded in the 1980s with the acquisition of Järvenpään Kotelo Oy and Pak-Paino.

History of Metsäliiton Teollisuus Oy

The history of Metsäliiton Teollisuus was shorter than Serlachius’s but organizationally more complex, since it was the creation not of a single founder and his successors but of a cooperative movement. It has its origins in 1934, when the Central Federation of Agricultural Producers set up Metsäliitto Oy, with Ilmari Kalkkinen as managing director, to supervise the export of products from its forestry department. Kalkkinen was also managing director of the Osuuskunta Metsäliitto, the cooperative organization of forest owners, which took over control of Metsäliitto in 1947. The company then diversified into sawn timber and impregnated wood, acquiring both a plywood factory at Hämeenlinna and pulp, paper, and paperboard mills and chemical plants at Äänekoski. These mills later became part of a subsidiary company, Metsäliiton Selluloosa Oy.

Company Perspectives:

M-rea’s objective is to enhance its customers’ business by providing them with excellent fibre-based products and value-added services for their needs in consumer packaging, communications, and advertising.

Kalkkinen retired in 1959 and was succeeded by Viljo A. Kytölä, under whom the board of directors and the management of the cooperative and of Metsäliitto were combined from 1960 onward. During the 1960s, Metsäliitto’s plant and equipment were extensively modernized. In 1965, it became the main shareholder in Savon Sellu Mills and set up another pulp-producing subsidiary, Oy Metsäpohjanmaa-Skogsbotnia Ab. Meanwhile, Osuuskunta Metsäliitto established three more companies, Teollisuusosuuskunta Metsä-Saimaa, which operated sawmills; Oy Metsäliiton Paperi Ab, which had a paper mill at Kirkniemi; and Metsäliiton Myyntikonttorit, which brought together the cooperative’s sales offices. In 1973, all these operations were reorganized. Osuuskunta Metsäliitto took responsibility for all wood procurement and marketing, with Metsäliiton Myyntikonttorit and Metsäliitto Oy as subsidiaries, while Metsäliiton Selluloosa Oy, renamed Metsäliiton Teollisuus Oy, became the parent company for the Metsäliitto groups’ production activities, thus leaving Metsäliitto Oy as a timber procurement company and the largest supplier of timber in Finland. Following Kytölä’s retirement, the managing directors of each of these bodies—respectively Mikko Wuoti and Peniti O. Rautalahti—became deputies to a single powerful president, Veikko Vainio. In 1980, all three were replaced, Vainio by Wuoti, Wuoti by Matti Puttonen, and Rautalahti by Ebble Sommar. By 1986, when Metsäliiton Teollisuus began negotiating the merger with G.A. Serlachius, its production units were making not only pulp, paper, plywood, and various kinds of board but also loghouses, saunas, doors, and windows.

A Merger Creates Metsä-Serla

The merger between Metsäliiton Teollisuus and G.A. Serlachius took effect on January 1, 1987, with Gustaf Serlachius as chairman of the board, Mikko Wuoti as his deputy, and Ebbe Sommar as managing director. The two groups were of similar size, for Metsäliiton Teollisuus had a turnover of Fmk2.5 billion and assets worth Fmk3 billion, while the equivalent figures for G.A. Serlachius were Fmk2.8 billion and Fmk3 billion.

Metsäliitto held nearly 57 percent of the shares in Metsäliiton Teollisuus at the time of the merger and came to hold the largest single portion of Metsä-Serla’s shares, 27 percent, and votes, 48 percent, proportions which have risen slightly since the merger was completed. The other leading shareholders are the Gösta Serlachius Art Foundation, Gustaf Serlachius himself, and several Finnish insurance companies. The new company started out with 17 subsidiaries in Finland and 14 in other European countries.

Metsä-Serla’s ten divisions faced serious problems, with excess capacity in eight divisions—magazine paper, fine paper, paperboard, domestic packaging, tissue paper products, chemicals, sawn timber, and building materials—alongside some success in international packaging and panel products. During its first year, the company brought a new fine-paper mill at Äänekoski into operation, disposed of seven subsidiaries not directly linked to forestry, and increased its majority shareholding in Oy Metsä-Botnia Ab, a bleached pulp producer. Profits rose by 17 percent, largely because demand for paper, cartons, tissue paper products, and building materials improved, but the company’s work force was cut from about 13,200 to about 12,000. Production costs fell appreciably, compared with those in 1985, because a reform of Finland’s energy tax and decreases in the prices of fuel oil and coal allowed the company, which derived 85 percent of its electricity from its own power stations or from firms in which it has shares, to reduce its spending on energy.

Profits rose again in 1988 and in 1989 as demand grew in all the areas of Metsä-Serla’s output. A new paper mill was started up at Äänekoski to help meet the rising demand. Early in 1989, Metsä-Serla bought the tissue paper and hygiene products company Holmen Hygiene from its Swedish parent company Mo Och Domsjo, renaming it Metsä-Serla AB. In 1988, this company had been the first in the world to produce unchlorinated tissue products. Metsä-Serla retained its plant in Sweden but sold off its factories in Belgium and Britain. The tissue paper products division became the second-largest producer of such products in western Europe, supplying half the market in the Nordic countries.

Following the acquisition of another pulp and liner board company, Kemi Oy, in which Osuuskunta Metsäliitto had had shares since 1950, the bleached pulp subsidiary Oy Metsä-Botnia Ab was reorganized in 1989 in order to reduce the company’s need for pulp from other sources. One of its two mills, at Äänekoski, was absorbed into Metsä-Serla—to be run by a subsidiary called Metsä-Sellu—and the other, at Kaskinen, was assigned to a new Oy Metsä-Botnia Ab, which also took over Kemi Oy and Pohjan Sellu Oy in 1991. Metsä-Botnia was jointly owned by Metsä-Serla (around 30 percent); Osuuskunta Metsäliitto; United Paper Mills, Finland’s largest forest products corporation; and the Tapióla Insurance Group. Metsä-Serla then acquired 30 percent of the shares of United Paper Mills itself. This action was seen as a hostile takeover bid but was justified by Metsä-Serla as an attempt to develop cooperation between the two groups, building on the Metsä-Botnia venture. In April 1990, it vetoed the long-awaited merger between United Paper Mills and Rauma-Repola but accepted the proposal two months later in return for seats on the board of the merged company Repola Oy and agreement on coordinating investments, marketing, and timber procurement. This agreement also led to the issuing of new shares in Metsä-Serla to Rauma-Repola Oy, which ended the year with a 7.6 percent holding, now owned by Repola Oy.

In April 1990, Timo Poranen succeeded Ebbe Sommar. Just two months later, Poranen announced that profits were likely to fall once again during 1990 and that the company still faced problems of excess capacity and rising production costs. Indeed, the whole Finnish forest industry was suffering from high production costs and an unfavorable exchange rate. The company’s restructuring continued throughout 1990 with the purchase of 75 percent of the shares in a British paper merchant company, the Alliance Paper Group, and the transfer of the panel products division to Finnforest Oy, in which Metsäliitto had 90 percent of the shares and Metsä-Serla had 10 percent. Metsä-Serla also pressed on with the building up of its stake in United Paper Mills, so that by the end of the year it held 34.1 percent of voting rights. At 21.1 percent of the total shares, it was the biggest single shareholder in Repola Oy, the parent company of United Paper Mills, and the two groups generally cooperated on pulp mill investment. The company began disposing of these shares in 1996, however, when United Paper Mills merged with Kymmene.

Key Dates:

1868:

Gustaf Adolf Serlachius moves to Mänttä to start his own mill for grinding wood into pulp.

1913:

The business comes under the direction of Serlachius’s nephew, Gösta Michael Serlachius.

1934:

The Central Federation of Agricultural Producers sets up Metsäliitto Oy to supervise the export of products from its forestry department.

1947:

Osuuskunta Metsäliitto, the cooperative organization of forest owners, takes over control of Metsäliitto.

1973:

Metsäliitto is reorganized; Metsäliitto Teollisuus Oy becomes the parent company for the group’s production activities.

1986:

Metsä-Serla Oy is formed by the merger between Metsäliiton Teollisuus Oy and G.A. Serlachius Oy.

2001:

The company changes its name to M-real Oyj.

Metsä-Serla’s turnover in 1990 was nearly one and a half times the combined turnover of the companies which came together to create it in 1986. Its high level of diversification, and its close connections with Osuuskunta Metsäliitto, which represented nearly 130,000 owners of private forests, with Metsäliitto, the largest timber supplier in Finland, and with Repola Oy, the country’s biggest private industrial corporation, provided the group with secure foundations for dealing with the turbulent nature of the European paper industry during the remainder of the decade.

Creating a New Look: 1990s and Beyond

The downturn in the global forest industry continued through the early 1990s. This eventually took its toll on Metsä-Serla’s profits as well as the profits of its competitors. As such, the industry began to see a wave of restructuring, mergers, and the formation of alliances. Metsä-Serla returned to profitability during 1993, mainly due to its cost cutting efforts. The company divested both its sawmilling and chemicals business in 1995 and 1996, respectively, in moves that signaled the firm’s focus was shifting back to its core operations.

During this time period, the firm’s Finnish competitors were joining forces in large mergers that positioned them a step ahead of Metsä-Serla. The formation of United Paper Mill (UPM)-Kymmene Corp. and Enso Oy’s purchase of Veitsiluoto left the company forced to make some key moves of its own. During 1996, the company acquired MD Papier, a German magazine and specialty paper manufacturer. It also formed a strategic alliance with the Finnish forestry group Myllykoski and purchased two production plants from UPM-Kymmene for $429 million in order to bolster its paperboard capacity. In 1997, the firm consolidated its pulp operations of Metsä Botnia and launched a public offering of its Metsä Tissue subsidiary. British fine paper wholesaler UK Paper was acquired in 1998 along with 94 percent of Medienos Plausas. That year, the company strengthened its tissue holdings with the purchase of Halstrick and Strepp in Germany.

Along with its acquisition and divestiture strategy, Metsä-Serla also focused on internal restructuring. This line of attack appeared to pay off, and by 1998 the company was posting near record results. Jorma Vaajoki, the company’s CEO at the time, commented on the company’s efforts in a 1999 Pulp & Paper International article, claiming that “catching up with our competitors is simply a confession that our results were lousy for a number of years. Our return on capital employed was not very good at all.” Metsä-Serla’s turnaround was successful, however, and by the end of the 1990s the firm was operating as Europe’s largest coated and uncoated fine paper producer.

Buoyed by strong demand and rising prices, Metsä-Serla was optimistic as it entered the new century. The company focused on augmenting its coated paper and consumer packaging business, eyeing these divisions as key to maintaining a leading position in the European market. In late 2000, the company announced its plans to purchase a 72 percent interest in German-based Zanders Feinpapiere from International Paper Co. After the deal, Metsä-Serla controlled 23 percent of the European office papers market, which included printing papers and paper used for magazines.

The company made a bold move in 2001 when it changed its name to M-real Oyj. The new name stood for “making it real” and was designed to create a hip and more creative image for the company. “We want to highlight the timeless possibilities which paper affords for creativity, and intend to tie our product names in closely with our company names to create more direct contact with our company for the users of our products,” remarked Jouko Jaakkola in a May 2001 Paperboard Packaging article. Jaakkola was named president and CEO of M-real in late 2001.

The company faced weakening demand for many of its products during 2002, resulting in lower sales and profits. While it continued to face challenges into 2003, company management remained convinced that the firm was on a successful track. With a new CEO and a new name, M-real was determined to remain a leading force in the European market and planned to seek out growth opportunities in Asia in the years to come.

Principal Subsidiaries

Alakoski Oy (52.78%); Oy Board International AB; Oy Hangö Stevedoring AB (75.33%); M-real International Oy; Forestia Oy (94.51%); Metsä Tissue Oy (65.58%); Tako Carton Plant Ltd.; äänevoima Oy (45%); M-real Deutsche Hilding Gmbh (Germany); M-real Fine B.V. (The Netherlands); M-real Holding Belgium S.A.; M-real UK Holdings Ltd.; Map Merchant Holdings B.V. (The Netherlands).

Principal Operating Units

Consumer Packaging; Commercial Printing; Home & Office; Publishing; Map Merchant Group.

Principal Competitors

International Paper Co.; Store Enso Oyj; UPM-Kymmene Corp.

Further Reading

Brown-Humes, Christopher, “Metsa-Serla Returns to Profit,” Financial Times London, February 19, 1994, p. 9.

Brown-Humes, Christopher, and Hilary Barnes, “Metsa-Serla Cuts Losses by Half to FM290m,” Financial Times (London), February 22, 1993, p. 19.

Fales, Gregg, “Metsa-Serla Agrees to Zanders Takeover,” PIMA’s North American Papermaker, December 2000, p. 17.

Kenny, Jim, “Playing Catch-up with Metsa-Serla,” Pulp & Paper International, June 1999, p. 27.

Richards, E. G., ed., Forestry and the Forest Industries: Past and Future, Dordrecht: Martinus Nijhoff Publishers, 1987.

Tessieri, Enrique, “Metsa-Serla Falls Into the Red With Loss of FM41m,” Financial Times (London), February 28, 1991, p. 18.

——, “Stuck from All Sides-Finland,” Financial Times (London), May 24, 1991, p. 36.

—Patrick Heenan

—update: Christina M. Stansell