Fraser Papers Inc.
TSX : FPS

Fraser Papers Inc.

January 30, 2007 17:30 ET

Fraser Papers to Acquire Katahdin Paper Company LLC Expands Specialty Groundwood Papers Business

TORONTO, ONTARIO--(CCNMatthews - Jan. 30, 2007) -

(All financial references are in US dollars unless otherwise noted)

Fraser Papers Inc. ("Fraser Papers") (TSX:FPS) today announced that it has entered into a definitive agreement with Brookfield Asset Management Inc. ("Brookfield") (NYSE:BAM)(TSX:BAM) to acquire the operations of Katahdin Paper Company LLC for $50 million plus working capital. In addition, Fraser Papers will make contingent royalty payments based on the cash flow of the super-calendered business.

The transaction announced today is expected to close in the second quarter and is subject to the approval of a committee of directors of Fraser Papers who are independent of Brookfield, approval of the full board, approval of the majority of shareholders of Fraser Papers other than Brookfield and regulatory approval. Shareholders can expect to receive an information circular detailing the transaction and their approval will be sought at a meeting to be held in late April.

If this agreement is approved, Fraser Papers will acquire two businesses:

- A directory papers business with leading market share in this North American market segment and 250,000 tons per year of production capacity. Located in East Millinocket, Maine, it operates two 125,000 tons per year paper machines, a 180,000 tons per year groundwood pulp mill and a 110,000 tons per year recycled pulp mill along with related facilities.

- A 180,000 tons per year super-calendered paper business serving customers in the retail insert, catalogue and magazine market from a technologically advanced paper machine located in Millinocket, Maine.

The acquisition represents an attractive investment for Fraser Papers on the basis of the following merits:

- Strategic Fit - Substantial growth opportunity for Fraser's existing specialty papers business in market segments where the Company can establish competitive advantage.

- Attractive Valuation - US$50 million consideration paid represents a 4.5 times multiple on forecast 2007 EBITDA for the directory business.

- Transaction Structure - Contingent royalty structure enables Fraser to reduce capital at risk in the transaction as payments are based on the future performance of the super-calendered business.

- Known Business and Assets - No conventional transaction due diligence risk as Fraser has been managing Katahdin since 2003.

"This represents an opportunity for Fraser Papers to substantially grow our specialty papers business with the addition of two complementary groundwood products, each with strong brand recognition, providing a broader product offering to our publication customers," commented Dominic Gammiero, Chief Executive Officer. "In addition, we believe the addition of scale, quality and technology that these three modern paper machines bring to our existing asset base will improve our competitive position in the long term."

In 2006, Katahdin's directory business shipped 243,000 tons of high quality paper to a customer base that included the largest directory publishers in the U.S. market. The super-calendered paper operation at the Millinocket operation shipped 168,000 tons of specialty groundwood paper in 2006. This business is focused on manufacturing premium grades of super-calendered papers for the growing retail insert, catalogue and magazine segment in North America. The combined operations will increase Fraser Papers' production capacity to over 1.1 million tons of paper from 650,000 tons in 2006.

Total cash consideration for the acquisition is estimated to be $80 million, including estimated working capital at closing of approximately $30 million. The acquisition will be financed from cash on hand and existing and new credit facilities supported by the Company's accounts receivable and inventory. The Company has a low net debt to equity ratio and marketable securities of $30 million. Fraser Papers will pay a royalty to Brookfield contingent on the generation of positive free cash flow generated by the super-calendered business. The royalty will start at 80% of cumulative free cash flow and decline over time as certain thresholds are reached.

The acquisition of Katahdin is a related-party transaction under Canadian securities regulations. As such, the agreement is subject to the approval of a special committee of the Board of the Directors of Fraser Papers and the disinterested shareholders of the Company. In addition, as required under Canadian securities regulations, the assets being acquired will be subject to a formal valuation, which will be supervised by the special committee.

Fraser Papers is an integrated specialty paper company which produces a broad range of specialty printing and packaging papers. The company has operations in New Brunswick, Maine, New Hampshire and Quebec. Fraser Papers is listed on the Toronto Stock Exchange under the symbol: FPS. For more information, visit the Fraser Papers web site at www.fraserpapers.com.

Note: This press release contains "forward-looking statements" that are based on certain assumptions and reflect the company's current expectations. The words "expected", "will", "can", "estimated", "forecast", "believe" and other expressions that may be predictions of or indicate future events and trends, and that do not relate to historical matters, identify forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements include general economic conditions, interest rates, demand for and prices of the company's and Katahdin's products, raw materials and operating costs, the results and determinations to be made by the board of directors and shareholders of the Company and other risks detailed from time to time in the documents filed by the company with securities regulators in Canada. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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