Story Photos
 Photo by Roger Werth Longview Aluminum plant manager Lou Locke passes 60-year-old potlines on March 26 as he tours the smelter plant. After spending the past three years keeping the plant ready to restart, Locke is now preparing its equipment to be sold at auction later this month. |
What Alcoa got in smelter swap, sale
Saturday, April 3, 2004 6:35 PM PST
By Pat Forgey
Printable version
E-mail this articleLongview Aluminum owner Michael Lynch may have taken the blame for the closure of Longview's aluminum smelter, but it was former owner Alcoa Inc. that reaped most of the benefits, according to an investigation by The Daily News and interviews with those involved with the plant over the last four years.
Alcoa's 2000 takeover of Reynolds Metals Co. risked violating anti-trust regulations as the nation's No. 1 aluminum producer absorbed No. 2. The U.S. Department of Justice and the European Union investigated the merger, and the EU required Alcoa to sell off 25 percent of Reynolds' Longview smelter, largely because of objections to the merger raised by Lynch.
Alcoa responded by selling 100 percent of the plant to Lynch, leaving the fate of the smelter and its 900 employees in the hands of the would-be metals magnate. Workers and local residents have long accused Lynch, who purchased and closed down the smelter, of profiting at their expense, but many are now looking at how Alcoa's benefitted as well.
A review of documents and interviews with those involved show:
• Alcoa's sale of the plant to Lynch eliminated one of the most vocal critics of its takeover of Reynolds, clearing the way for the $5.6 billion merger.
• Selling the plant may have freed Alcoa from a union contract it inherited from Reynolds that made closing the plant expensive.
• The closure of the Longview smelter cut 204,000 tons per year of aluminum output --- more than 10 percent of Alcoa's U.S. production capacity at the end of 2003. Industry analysts had long sought production cuts to help prop up prices, which would benefit Alcoa, the industry's dominant player.
• Alcoa collected $150 million for the plant. It's impossible to say how much an operating plant would have made for Alcoa, but today the plant is only worth its value in scrap metal.
The Daily News obtained documents last month from the Department of Justice's Anti-Trust Division under the federal Freedom of Information Act. The documents show the main concern of anti-trust regulators in the United States was how the Alcoa-Reynolds merger would affect companies purchasing raw aluminum.
For Longview, the sale has meant the end of the plant and the jobs it once provided. Many of the employees have spent years thinking they'd one day be able to return to their jobs there, but by January it was clear the plant was going away. An auction of its equipment is scheduled for later this month.
Some predicted that would happen.
In 1999, before the Alcoa-Reynolds merger was complete, former plant manager John Larsen warned that a takeover by Alcoa could be the end of the plant.
He told The Daily News that "he didn't think a buyout by Alcoa will do the plant any good."
Alcoa already had a great deal of smelting capacity. What it wanted from Reynolds was its capability to produce alumina, the raw material from which aluminum is smelted, and its consumer products such as Reynolds Wrap, according to industry analysts quoted at the time. That left Reynolds' smelters, including those in Longview and Troutdale, Ore., as an afterthought.
Even with the closure of several Alcoa smelters in recent years, including Longview and Troutdale, Alcoa still has more smelting capacity than it needs. In Alcoa's most recent annual report it said it had total smelting capacity of 4 million tons per year, with 562,000 currently idled. Longview Aluminum's capacity is 204,000.
Larsen had predicted Alcoa would close unneeded smelters.
"They might not keep them open. It would be too bad," said Larsen, who died in 2000. Alcoa is now demolishing the Troutdale smelter.
"Had that merger not occurred, I'm pretty confident it would still be operating," said Gaylan Prescott, Longview staff representative of the United Steelworkers of America.
THE BPA MONEY
Alcoa's sale of the plant to Lynch's company was made possible by a $225 million payment from the Bonneville Power Administration.
At the height of the 2000 West Coast power crisis, the federal power marketing agency had more contracts for power than it could supply. It was willing to pay big customers such as Longview Aluminum to stop using it. Bonneville required those big power customers to keep paying employees so local communities wouldn't be devastated by loss of wages, and sometimes to reinvest in their plants.
In Longview, that meant the $75 million that Lynch received came with conditions, while the $150 million he paid to Alcoa had no strings attached.
Bill Brandt, a bankruptcy trustee appointed by the Federal Bankruptcy Court in Chicago, spent months trying unsuccessfully to find a buyer for Longview Aluminum who would pay more for the smelter than the value of the scrap metal it contains. When that effort failed, he scheduled a late April auction of the plant's equipment.
Prescott said Alcoa benefited there as well.
"What a sweet deal. They got $150 million for a plant that today they couldn't give away," he said.
LABOR CONTRACT
The Longview Federated Aluminum Council's contract with Reynolds Metals/Alcoa requires extra payments to workers in the event the plant was shut down permanently. Lynch's bankrupt Longview Aluminum has no ability to pay those pension benefits, and Alcoa spokesman Kevin Lowery said last month they're no longer Alcoa's responsibility.
Union representative Prescott said those retirement payments run into the tens of millions of dollars.
"At this point it looks very much like Alcoa has evaded the historic obligations of Reynolds, by selling to a buyer (Lynch) that had no intent to operate it and had no ability to operate it," Prescott said.
Lowery declined to say whether Alcoa would have kept the Longview smelter open, but he said it had no knowledge that Lynch would close the plant.
"I think it's a bit of a leap to think we would have known what somebody else's operation plans would be," he said.
However, court documents and news reports at the time clearly showed that Lynch was going to shut down the smelter for at least a year, while he was receiving funds from the BPA. Union officials say Alcoa should have known at the time that Lynch's finances were too shaky to ever restart the plant.
The main company Lynch uses for investments is called Michigan Avenue Partners. Michigan Avenue purchased Longview Aluminum, Scottsboro Aluminum, McCook Metals and Great Lakes Metals, each of which was set up as a separate limited liability company. All are now bankrupt.
The McCook bankruptcy filing showed that it owed millions of dollars to Reynolds for aluminum. That's something Prescott said Alcoa must have known, though the union didn't.
25 PERCENT OWNERSHIP
Anti-trust regulators with the European Union forced Alcoa to sell off a 25 percent ownership of Longview Aluminum in order to preserve competition in the production of specialty high-purity aluminum. Alcoa, instead, sold the entire plant to Lynch's Michigan Avenue Partners.
Prescott said that if Alcoa had sold only a 25 percent interest in the plant, a joint operation may have been more likely to remain in operation.
In 2003 an editorial in the American Metal Markets trade publication said that, if workers were looking for someone to blame for the shutdown, they should look beyond Lynch.
"The Longview workers also might look at Alcoa, which could have kept a majority holding in the plant, but instead sold the entire stake to Lynch," the editorial said.
Alcoa's Lowery said selling the entire plant met the European Union requirement, and selling only a quarter would have been difficult if not impossible. "Traditionally it's not easy to sell a piece of a facility," he said.
Brandt, the court-appointed bankruptcy trustee, said Alcoa walked away from Longview with tens of millions of dollars in BPA ratepayer money and "left the rest of us holding the bag." Brandt said he's examining the transaction.
Lynch, too, has blamed Alcoa, last year calling the company a "bully" intending to close American aluminum production and build new cheaper plants overseas at the expense of American workers.
Though it was Alcoa that sold the smelter to Lynch's Michigan Avenue Partners, Lowery said to consider the source.
"I think its pretty fair to say, if you wanted to stake the reputation of Alcoa vs. the reputation of Michigan Avenue Partners, I think hands down, people would say Alcoa is the organization here that always tries to do the right thing. "
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