VANCOUVER - In the continuing move towards merging of pulp and paper companies, Norske Skog Canada announced Monday that it plans to acquire Pacifica Papers.

Pacifica was spun off by MacMillan Bloedel in 1998, while Norske Skog Canada is formerly Fletcher Challenge Canada. The acquisition will involve an exchange of shares and cash, a news release said.

Pacifica shareholders may receive 2.1 Norske Skog Canada shares for one Pacifica share or alternatively, one share of Norske Skog Canada and $7.50 cash.

Norske Skog Canada will make a special distribution of $12 per share to its existing common shareholders through a separate plan of arrangement.

There were no details on the total cost of the deal but the companies said the move would create North America's third largest newsprint and specialty groundwood papers company.

Combined annual sales of both companies in 2000 were $2.5 billion.

The company will retain the Norske Skog Canada name and will be headquartered in Vancouver.

The boards of both companies are recommending approval of the deal. Shareholders meetings to vote on the proposal are expected to be held in May.

Norske Skog Canada said it expects $60 million in cost savings, the company said in a release.

Norske Skog president and CEO Russell Horner, said the proximity of the company's Vancouver Island mills with Pacifica's Port Alberni and Powell River operations offers synergies and benefits that no other two companies could achieve.

Norske Skog operates pulp and paper mills at Crofton and Campbell River and it still trying to sell its Mackenzie Pulp operation in the B.C. northern Interior.

Pacifica has 1,800 employees while Norske Skog has 2,100.

With four mills located within a 100-mile radius on the lower south coast, we will be creating a global scale, value-adding business that will benefit our stakeholders and the province of B.C., Horner said in a release.

Horner said the strong affiliation with Norske Skog ASA would continue even though the Norwegian-based company's stake in the Canadian company will fall below its current 50.8 per cent majority interest as a result of the Pacifica acquisition.

Companies in Canada, the United States and Europe are bulking up to cut costs and become more efficient as world paper prices are squeezed by intense competition and new production capacity.

In Canada, Montreal-based Abitibi-Consolidated acquired Donohue Inc. last year, creating one of the world's biggest paper companies. Meanwhile, U.S. industry giants like International Paper have recently completed multibillion-dollar acquisitions to become even more dominant in key markets.