Apr 26, 2005. /Lesprom Network/. Stora Enso yesterday took a further step in expanding its paper merchants business when it agreed to pay about Euro 450 million ($584 million) cash for Germany's Schneidersohne Group. The purchase will make Stora Enso Europe's second-largest paper merchant and follows on from its acquisitions of two other smaller paper merchants, Scaldia Papier in the Netherlands and Papeteries de France. Kai Korhonen, Stora Enso vice-president, said the purchase would help the group better understand customer and end-user needs. It will also improve profitability in Stora Enso's existing merchant business Papyrus, Mr Korhonen said. "Schneidersohne is a well established company with a wide customer base, attractive product range and strong product brands," he added. While paper producers deal directly with large publishers, thousands of smaller customers are serviced by merchants. This is especially true in the field of fine paper, where 50-60% of production goes through the merchant channels. Schneidersohne is particularly strong in the German and Swiss markets with 38 branch offices and net sales of Euro 1.13 billion in 2004. Analysts said by controlling a strong merchant network Stora Enso hoped to stabilise the flow of paper from its mills. Even after the purchase the European merchant segment remains fragmented with Stora Enso holding about 15% of the market, behind the leader, Paperlinx. The move comes in the week when many of Europe's largest paper makers such as Stora Enso, UPM Kymmene, SCA and M-Real are to report first-quarter results. After several years of weak demand, 2004 saw a pick-up in paper markets and this trend is expected to have continued in the three months to March 31. However production overcapacity has made it difficult for paper makers to push through price increases, especially in fine papers. Standard & Poor's said its ratings and outlook on Stora Enso remained unchanged. "The acquisition supports Stora Enso's strategy to move closer to its end-customer, primarily in the volatile fine-paper segment," the ratings agency said. "The near-term impact on Stora Enso's financial profile is, however, slightly negative, as the acquisition will increase net debt levels but will not contribute materially to operating cashflows," it added.