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NEWS SCAN
Tembec to buy Crestbrook for $70.4 million in cash, stock creating pulp powerhouse
Tembec Inc. would acquire British Columbia pulp and lumber company Crestbrook Forest Industries Ltd. for C$271.5 million. Under the definitive agreement signed in January, Tembec would acquire C$201.1 million of Crestbrook’s long-term debt. Crestbrook stockholders are being offered either one-half a Tembec voting share or C$4.50 in Tembec shares; there are 15.6 million Crestbrook shares outstanding. Under a negotiated lock-up agreement, Mitsubishi Corp. and Oji Paper Co. have already agreed to tender their respective 30.1% and 20.4% shares of Crestbrook, though the deal could reopen if they receive an unsolicited offer for more than C$5/share. Shareholders meet Mar. 23 and the deal is expected to close by Apr. 15 once necessary approvals have been obtained.
Tembec said the acquisition would make it Canada’s largest market pulp producer, at 1.095 million mtpy, and fourth-largest in lumber production. Crestbrook produces 225,000 mtpy of northern bleached kraft pulp at its Skookumchuck, B. C., mill, which is also about the same capacity as Tembec’s Smooth Rock Falls, Ont., mill, which was purchased in 1996 and gave Tembec its entry into kraft pulp. Tembec also produces 280,000 mtpy of hardwood bleached chemithermomechanical pulp (BCTMP) for the market and 170,000 mtpy of dissolving pulp for the market (not including the dissolving pulp from its Atholville, N.B., mill, all of which is targeted for use by its joint venture partner).
The financially troubled Crestbrook needed to refinance its debt load. Last year it sold its interest in the Alberta-Pacific Forest Industries Inc. pulp mill to a company formed by Mitsubishi and Oji, its partners in the venture. It tried, without success, to go to market for a source of funding, including a high-yield possibility that fell through late last summer.
Strategic fit. Tembec president and CEO Frank Dottori said Tembec has about a third of its business in each of its three strategic areas of pulp, lumber, and publishing papers, and that “Crestbrook certainly fits our investment strategy.” He said Crestbrook’s pulp mill is value-added, low-cost, and in good shape—it underwent a C$290 million modernization in 1994—with “excellent assets and excellent people, and we are not intimidated by the B.C. scenario,” which he described as being addressed. “In the next year or two we expect to see that this is an excellent investment.” Tembec believes the downturned market provides a good opportunity to acquire a pulp mill on favorable terms, and that the market has no place to go but up.
Following the acquisition announcement, it was announced that Crestbrook president and CEO Jim A. Shepherd would join Slocan Forest Products Ltd. as president and CEO and that Crestbrook director Robert Chambers would replace Shepherd.
IP, Consolidated report 4Q results
International Paper Co., the largest U.S. paper and forestry group, has reported a 43% decline in fourth-quarter 1998 earnings before special charges, reflecting sharply lower paper prices from a year ago and lower production levels. Excluding special items, earnings for the recent quarter were $66 million compared to $115 million in 1997. For the full year, earnings before special items were $308 million compared with $310 million in 1997. Special items in 1998 reduced earnings by $95 million (after taxes) and $461 million in 1997, resulting in net earnings of $213 million in 1998 and a net loss of $151 million in 1997. Sales were $19.5 billion in 1998, down from $20.1 billion in 1997.
Many of the special charges recorded in 1997 and 1998 were related to the company’s far reaching cost reduction measures and the sale of non-core assets. John T. Dillon, the company’s chairman and CEO, said he is now “more optimistic” about the future following restructuring and the expectation of higher prices for printing and packaging papers this year.
“We have significantly reduced costs, improved our performance with customers, learned how to more efficiently manage capacity in weak markets, sharpened our focus on winning businesses, completed the sale of more than $1 billion in assets, and negotiated a merger with Union Camp Corp.,” said Dillon.
In November, IP agreed to acquire Union Camp in a $5 billion stock transaction that will strengthen its market share in uncoated free-sheet paper and kraft linerboard. The deal is expected to be completed by the end of the first quarter and should contribute to improved price stability in these grades, analysts say.
Consolidated Papers Inc. reported fourth-quarter net income of $19 million compared with $35.8 million in the fourth quarter of 1997. For the year, earnings were $107 million before special items and net sales were $2 billion. This compares to net income of $118 million and sales of $1.7 billion in 1997.
Gorton M. Evans, president and CEO, said the results were disappointing due to declining prices for many of the company’s coated and supercalendered printing papers. Consolidated is the country’s largest producer of coated printing papers for the printing and publishing industries.
“Throughout our industry, the domestic supply of coated printing papers continues to exceed domestic demand, as much of the increased demand has been absorbed by imports from foreign producers taking advantage of low labor cost, low raw material costs, lower currency exchange rates and trade protectionism,” said Evans. The company said it took periodic downtime during the year to balance inventories, resulting production losses of approximately 113,000 tons and said it might take more as conditions warrant. Total shipments of printing papers were 1.94 million tons, up 18% from 1997.
In October, Consolidated announced that its Castle Rock Container Co. subsidiary was being offered for sale as part of the company’s strategic focus on printing and specialty papers. A potential buyer has not been named.
Weaver named to top Abitibi position
Abitibi-Consolidated Inc. in January appointed John W. Weaver president and CEO, succeeding operating chairman Ronald Y. Oberlander and president and chief executive James Doughan. Weaver, currently an executive vice president and president of newsprint operations and sales, will assume his new role at the company’s annual general meeting Apr. 27.
“The board wanted a successor who would bring to Abitibi-Consolidated extensive operational and strategic experience, as well as a demonstrated ability to build and maintain organizational excellence,” John Tory Sr., chairman of the Human Resources and Compensation Committee of the board of directors, said in a statement. “John Weaver’s track record of success and his commitment to deliver results and achieve the company’s vision won the board over. He is the right person to lead Abitibi-Consolidated in this new era of the company’s growth.”
As president of newsprint operations and sales, Weaver “was already running a division that was equal to the size and scope of many of our competitors,” responsible for more than 3 million metric tons of newsprint production and more than C$2 billion in sales annually, said Susan Rogers, vice president of communications. As a company insider,“He’s been through the merger and he knows what has not been accomplished,” she said. “He can hit the ground running really fast and our shareholders don’t have to wait an extra period of time to see some action.”
Abitibi shuts PM at Chandler mill
Abitibi-Consolidated Inc. announced Jan. 20 it will permanently shut the No. 2 newsprint machine at its Chandler mill on Quebec’s Gaspe peninsula, effectively removing 110,000 mtpy of newsprint production from the market. The machine, which had been idled since Dec. 24, is one of the highest-cost newsprint mills in North America. The company has been searching for a joint venture partner to help shoulder the burden of much-needed capital investments since the New York Times sold its 49% interest in December 1994.
Now, they appear to have found a partner in local entrepreneur Gilles Berube, whose Groupe Cedrico owns six sawmills and an engineered wood products facility. Abitibi-Consolidated and Groupe Cedrico have signed a letter of intent to form a joint venture that would acquire the mill as a one-machine operation. Groupe Cedrico would hold a 60% position in the joint venture through the contribution of its six sawmills in the Gaspe region. Abitibi-Consolidated would hold the remaining 40% through the contribution of the No. 1 machine, which has capacity to produce 150,000 mtpy.
To lower the cost of production at the mill, the joint venture would install a $70 million thermomechanical pulp (TMP) line to replace a stone groundwood system and build a $30 million sawmill complex. Abitibi-Consolidated said financing of the capital improvements would have no impact on its debt position. Once these changes are implemented, the mill will be what the company considers “cornerstone,” meaning the cost of production will be less than C$450/metric ton.
Executive vice president and CEO designate John Weaver said the joint venture would be “immediately accretive to our shareholders by removing the need for focused downtime at Chandler, through the restructuring efforts related to the one-machine operation, and with the addition of Cedrico’s profitable sawmill operations.”
The closure of one machine is “far better financially than shutting the mill entirely,” Rogers said. “There would have been a heavy cost associated with the write-down—somewhere in the neighborhood of C$100 million.” Abitibi-Consolidated will take a one-time cost for the write-down of the machine and related severance costs of about C$40 million, to be booked at fiscal year-end 1998.
“It is not an easy decision to shut down a machine so we are moving with careful consideration of what is in the best interest of all our stakeholders,” Weaver said, acknowledging the impact the machine shut will have on one of the most economically depressed regions in Quebec.
Willamette mothballs only coated machine
Willamette Industries Inc. will permanently shut down its No. 3 paper machine Apr. 1 at its Kingsport, Tenn., pulp and paper mill. The machine makes 50,000 tons of coated one side (C1S) paper and forms bond annually. Willamette will take a $5 million pretax charge against earnings during the fourth-quarter of 1998 to account for the closure.
The paper machine, built in 1939, is too small to effectively compete in a shrinking market. It is Willamette’s only C1S machine, and therefore not part of its core business. The onsite woodyard operation will also close because it is outdated, inefficient, and expensive to maintain. The mill will purchase chips to supply the soda pulp mill. Layoffs will affect 150 of the 570 employees working at the Kingsport, Tenn., site.
Newark to acquire Hayes Paper assets
The Newark Group Inc. and Hayes Manufacturing Group Inc. of Neenah, Wisc., announced that Newark will acquire the assets of Hayes’s Paper Resource Div., which is a major supplier of industrial packaging materials to North American paper mills. Hayes’s product line includes roll headers, end bands, dunnage air bags, rubber matting, skid tops and bottoms, slip sheets and vapor barriers. Newark’s Paperboard Products Div. already manufactures and distributes many of these products nationally and the addition of Hayes’s Neenah, Wis., converting facility will provide a Midwest manufacturing base to serve national and local accounts, said Fred von Zuben, Newark’s president and CEO. The Neenah facility also provides paper roll slitting and rewinding services.
The Newark transaction does not include Hayes’s paperboard composite can, and tube and core businesses. These operations will remain under Hayes’s ownership and management at two facilities in Neenah and Appleton, Wis.
Newark, headquartered in Cranford, N.J., also said it is discussing a merger with the MCI Group of Spain, which operates recycled paperboard mills and converting plants in Spain and France with products, technologies and markets similar to Newark’s U.S. businesses. Newark is the largest North American producer of 100% recycled paperboard products serving a wide range of industrial and consumer markets. It is hoped that the merger discussions can be successfully concluded in the first quarter of 1999, said von Zuben.
The major paper mill assets of MCI Group are Industrias San Andrés and Papelera Catalana. The paper mills produce tube and core stock and laminated board for book covers, game boards, etc., with combined annual production capacity of approximately 200,000 tons. Newark has total paper mill capacity of approximately 1.3 million tons. The merger of the two companies under Newark’s ownership would allow the trans-Atlantic introduction of new and proprietary products and the exchange of manufacturing practices and technologies that would improve the operations of both companies, said von Zuben. It would also mark Newark’s first major investment outside the U.S.
New Perkins, Greif plants planned in ’99
Perkins Papers Ltd. will build a new folding carton plant in Lachute, Que. Perkins will invest C$12.6 million to construct a 100,000 ft2 building to produce cartons for fast food restaurants, a market which is complementary to the range of tissue paper products Perkins also produces. Startup is scheduled for the end of May.
Greif Bros. Corp. plans to open a new industrial container manufacturing facility in Wright City, Mo., to consolidate manufacturing operations currently located in Kirkwood, Mo., and a distribution facility in Overland. Greif will spend $1.5 million on the new plant, including a 135,000 ft2 building the company will lease.
•Rockford Paperboard Inc. is the new name for the former Converters Paperboard Co. recycled paperboard mill located in Rockford, Mich. The mill was purchased by a group of independent investors.
Rand-Whitney acquires box plant
Rand-Whitney Container Corp. acquired the former Union Camp Corp. corrugated box plant in Newtown, Conn., in December. The plant produces corrugated shipping containers, die-cut specialties, and displays. With the plant, Rand-Whitney plans to expand its business in Connecticut as well as sell into the metropolitan New York market, said John McNabb, Rand-Whitney’s vice president for finance. Before making the acquisition, Rand-Whitney was looking at expanding one of its plants in Massachusetts or building a new facility, McNabb said. Instead, the company opted for the about 30-year-old, 130,000 ft2 Union Camp plant at a “reasonable” price, he said. Rand-Whitney now operates two corrugated plants and two sheet plants in the U.S. Northeast.
Menasha to buy corrugated plants
Menasha Corp. signed letters of intent to buy four corrugated sheet plants, including three in the U.S. South and one in Pennsylvania. The deal is expected to close in the first quarter, the company said in a release. The four sheet plants are Packaging Corp. of Carolina Inc. in Rockwell, N.C., near Charlotte; Tidewater Container Corp. of Suffolk, Va. near Norfolk; Packaging Services Inc. of Weyers Cave, Va.; and PSI Packaging Services Inc. of Connellsville, Pa. The Tidewater plant produces single-, double, and triple-wall corrugated containers, as well as government board. The Packaging Services Inc. plant in Weyers Cave produces corrugated containers and displays. Menasha has capacity to produce 275,000 tpy of corrugating medium, and operates 16 corrugated and related businesses in the U.S.
Chesapeake chooses N.C. for tissue mill
Wisconsin Tissue Mills Inc., a wholly owned subsidiary of Chesapeake Corp., has decided to build a greenfield tissue mill and converting center in Halifax County, N.C., just outside the cities of Roanoke Rapids and Weldon.
Thomas H. Johnson, president and CEO of Chesapeake Corp., said, “After performing an extensive search and reviewing several potential sites, and then further narrowing the candidates to two finalists, we decided that the Halifax County site best met our total requirements. This site is in good proximity to our customers and is also near large supplies of recyclable waste paper, the basic raw material for Wisconsin Tissue products.” The second site under consideration was Florence, Ala.
Chesapeake's board of directors gave final approval to the project, first announced last October, at a Jan. 14 meeting. Construction of the mill is planned to begin in this year’s third-quarter, with converting production beginning in the third-quarter of 2000 and paper production in the first quarter of 2001. The single paper machine will have an annual capacity of 100,000 tons. The mill will incorporate state-of-the-art recycling and deinking technology. Plans include onsite, high-speed converting equipment, as well as a distribution system for Wisconsin Tissue's away-from-home tissue products. Total cost is projected to be approximately $180 million. The mill is expected to employ 155 people upon completion in 2001.
Opinions on Gold River future mixed
An independent study on Bowater Inc.’s shuttered market pulp mill in Gold River, B.C., concludes that it is not financially viable, while a response to the report outlines a plan aimed at keeping it open. Bowater said when it announced the permanent closure effective Feb. 16 that the mill is not financially viable.
B.C. Forests Minister David Zirnhelt said the government-commissioned study by Arthur Andersen Inc. and NLK Consultants Inc., released in December, showed the mill is “not viable due to factors such as structural issues with the facility, the poor outlook for pulp prices, and fibre cost and quality.”
The C$92 million rescue plan by New York-based Keilin & Co., calls for a C$30 million loan from the provincial government and C$30 million in bank loan guarantees from the province, C$12 million from private investment (in exchange for 51% ownership of the mill), a 25% reduction in union wages and benefits (in exchange for union ownership of 49%), and C$20 million from Bowater. Earlier Bowater recorded an after-tax charge of about $40 million toward anticipated costs of the closure, including workers’ severance pay and shutdown expenses.
Keilin & Co. was retained by the government following the release of the earlier report and at the request of the Pulp and Paper Woodworkers of Canada (PPWC). The firm was asked to review whether there are financially sound options for restarting the mill. The B.C. government hasn’t yet decided how to proceed.
Slocan’s Fibreco Pulp reorganized
Slocan Forest Products Ltd.’s Fibreco Pulp operation has been reorganized, leaving it, as of Jan. 1, a wholly owned division of Slocan. The 240,000 mtpy softwood bleached chemithermomechanical pulp (BCTMP) mill in Taylor, B.C, had previously been a joint venture in which chip exporting consortium Fibreco Export Inc. had an effective interest of 14%. With Fibreco Export’s chip supply agreements up at the end of 1998, Slocan has taken over responsibility for supplying chips to the mill. Slocan also said it has reduced its participation in the Fibreco Export Inc. A Fibreco pulp source said the changes would have no impact on customers or company operations. Slocan acquired its original interest in Fibreco Pulp through subsidiaries in May 1991. Canadian BCTMP mills in general have not been running full at all times during the market downturn, and Fibreco Pulp is no exception.
IP switches to dissolving at Natchez
Because of “better returns” on dissolving pulp, International Paper Co.’s 400,000 mtpy market pulp mill in Natchez, Miss., is producing that grade only in 1999, a company source said. The mill already produces mostly high-alpha specialty dissolving pulp; its hardwood kraft production in recent years was as follows (in metric tons): 1998—approximately 42,000; 1997—68,000; 1996—18,000; 1995—30,000.
Alliance sells Dolbeau cogen plant
Alliance Forest Products Inc. announced Thursday the sale of its Dolbeau, Que., cogeneration plant to Boralex Inc. for C$76 million. Enviro-Energie Alliance Inc., built in 1997 for C$66 million, is fueled by bark from the company’s sawmills and supplies steam power to the adjacent paper mill. In addition, the plant produces 20 MW of electricity sold to Hydro-Quebec under a 25-year contract.
Alliance will use the proceeds from the sale to repurchase stock through a normal-course issuer bid valid until Aug. 6 and to reduce the company’s long-term debt, according to executive vice president and chief financial officer Dino Fuoco, who said the move is in line with Alliance’s original intent to eventually sell the plant.
“We wanted to build the plant according to our specifications,” Fuoco said. Now, “We want to get back to what it is we’re good at,” he said. The new structure should result in cost savings of C$10-15/metric ton of production at the mill, according to Fuoco.
Under the agreement signed Thursday, Boralex will be responsible for the Hydro-Quebec supply contract. Enviro-Energie Alliance will continue to provide steam to the paper mill and Alliance will operate the cogen plant under Boralex management.
• International Paper Co. (IP) said it has received approval to change power suppliers at its Gardiner, Ore., mill from Central Lincoln People’s Utility District to Douglas Electric. On Dec. 31, 1998, the Oregon Public Utility Commission (OPUC)--for the first time in its history--denied an application for an exclusive service territory filed by Central Lincoln, according to a statement from IP. The Gardiner mill, which produces kraft linerboard, has been shut indefinitely since mid-December (P&PW, Nov. 9, p. 4).
• Trigen-BioPower has begun construction of a steam generation facility that will supply high-pressure steam to Gilman Paper Co.’s St. Mary’s, Ga., paper and paperboard mill under a 15-year contract. The facility, expected to be operational in first-quarter 2000, will burn primary paper sludge and waste wood from the facility
Kimberly-Clark selling Southeast timber
Kimberly-Clark Corp. (K-C) said it agreed to sell its Southeast timberlands and related operations which include 529,000 acres of woodlands in Alabama, Mississippi, and Tennessee to Southstar Timber Resources LLC. The company did not disclose the terms but said it expected to record a net gain on the transaction upon closing in early 1999.
A Texas newspaper reported the deal might be worth as much as $400-$600 an acre which could put the price at more than $300 million. The timberland operation employs more than 500 people who will be offered positions with Southstar. The new owner will continue to supply wood chips for export.
The sale is part of a restructuring that K-C unveiled in late 1997 that focuses the company more on tissue and sanitary products. The sale of the woodlands is associated with the planned closure of the Mobile, Ala., pulp mill in September. The company said it will use proceeds to fund acquisitions and share repurchases.
Southstar is a company set up by ACI Capital Co., a New York investment firm. In addition to ACI, Greenwich Street Capital partners II and Travelers Casualty and Surety Co. are helping fund the timberland purchase.
•Mead Corp. sold 78,100 acres of timberland in the Michigan Upper Peninsula to the Forestland Group of North Carolina. The land sold for $36 million or approximately $461/acre. The sale was part of an earlier announced plan to sell non-strategic assets.
Good-bye UPIU, hello PACE
Members of the United Paperworkers International Union (UPIU) and the Oil, Chemical and Atomic Workers International Union (OCAW) approved a merger of the two groups at a January meeting in Las Vegas. PACE, the Paper, Allied-Industrial, Chemical and Energy Workers International Union, is the new union with 320,000 members in industries from paper to pharmaceuticals.
“We intend to set the pace for organizing, a progressive vision, and international solidarity,” said Boyd Young, president of the new Nashville-based union who led the UPIU since 1996. Former OCAW president Robert Wages, now executive vice president of PACE, will assume key responsibilities in the union’s organizing program and will continue to coordinate national oil bargaining.
The new PACE constitution includes a special fund of “several million dollars” for organizing activities, according to union spokesperson Keith Romig. The OCAW lost about 50,000 members since the early 1980s but the UPIU’s decline has been more recent, losing 10,000 members since 1995. Still, Romig said the recent slide was not the impetus for the merger, which has been discussed since 1979. “It took a long time...because each (union) has a long, proud history of independent thinking and independent action.”
The UPIU, which has 240,000 members, was formed in 1972 by the merger of the United Papermakers & Paperworkers with the International Brotherhood of Pulp, Sulfite & Paper Mill Workers. In 1994, the UPIU merged with the Allied Industrial Workers (AIW). Roughly 180,000 UPIU members are employed in the pulp and paper industry.
The OCAW, formed in 1955 by the merger of the Oil Workers International Union and the CIO Chemical Workers, has 80,000 members. The union was a leading force in the initial adoption of the Occupational Safety and Health Act in 1970.
LABOR
FCC cleared in 1997 worker deaths
Fletcher Challenge Canada Ltd. and one of its managers have been found not guilty of several charges in connection with the 1997 deaths of two workers at its Crofton, B.C., mill.
The defendants were accused of failing to regularly inspect and maintain equipment in such a condition that workers would not be endangered. The workers were found dead at a deaerator and apparently suffocated while inspecting a pressure vessel.
Following a three-week trial, a judge in the Duncan, B.C., provincial court found that “the evidence presented in this case establishes that the defendants met the obligation and took reasonable steps to minimize a hazardous work environment.”
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