Fibre buyer intends to make mills profitable
Saturday, February 17, 2007 11:59 PM PST
By Evan Caldwell
Printable version
E-mail this articleThe Canadian company buying Longview Fibre Co. says it's committed to turning around the company's unprofitable pulp and paper operations -- and then it might sell them off.
If Fibre stockholders approve Brookfield Asset Management's $2.15 billion offer for Fibre, the "goal is to own the manufacturing business, work very hard to improve it and see what kind of (sale) opportunities there are out there," Reid Carter, a managing partner with Brookfield, said last week.
"It's not our long-term goal to own Longview (Fibre) for more than 10 years," he said. "We do want to prove that it can be profitable. And the possibility of later selling it is out there."
Asked about Brookfield's plans for Fibre, Paul Latta, a pulp and paper industry analyst with McAdams Wright Regan in Seattle, said "it doesn't surprise me."
Brookfield is focused on solid assets that are capable of providing a steady cash flow with little capital, Carter said. That's why the company intends to retain ownership of Fibre's 600,000 acres of timberland.
"I want to be clear, the timberlands brought our attention to Longview (Fibre)," Carter said.
Toronto-based Brookfield has a track record of buying out and turning around unprofitable pulp and paper mills and selling them -- with substantially pared back work forces. A case from Maine could provide a glimpse of the future for Fibre's manufacturing operations in Longview and elsewhere around the nation.
Mills in Millinockets
Earlier this decade, Brookfield --- then called Brascan --- bought two shuttered pulp and paper operations in central Maine for $90 million. It was part of a larger deal that included 350,000 acres of timberland, which, as in the case of the Longview Fibre purchase, were the choice assets.
In 1986, papers mills in East Millinocket and Millinocket in central Maine began changing hands. Periodic ownership changes created a 20-year period of uncertainty for workers and the town, according to sources from that area.
By 2003, the mill's then-owner, Inexcon, filed for bankruptcy, closed down operations and left about 1,100 out of work.
From the start, Brookfield told its stockholders about its plans of the two mills.
"We believe our operational and restructuring expertise will restore the profitability of these operations and, once achieved, the operations will be either sold or integrated" with the Brookfield operations, the company told shareholders in a 2003 report.
Within a year, Brookfield had restarted both Maine mills, but with a work force of 600, a 45 percent drop over the previous employment level.
Brookfield chose to restart both paper machines at the East Millinocket mill, which produces paper for phonebooks.
At the Millinocket mill, which makes high quality paper for magazines and advertising inserts and catalogues, only the newest of four paper restarted, said Millinocket Town Manager Gene Conlogue.
Brookfield's Maine goal
Conlogue said the drop in employees wasn't a surprise.
"They are a company that wants to be lean, much like nearly every other company in corporate America. But we have found them to be a good company to work with."
Of the handful of companies offering to buy the two mills in 2003, Brookfield offered the best chances to continue operations, Conlogue said.
"They were our choice of the companies to come here," he said. "That was probably as good as it was going to get. ... Obviously, we would like to have everyone back to work, but no other company had a better plan."
Conlogue said it wouldn't surprise him if Brookfield put money and effort into making Fibre a profitable operation and sold the mill.
Brookfield is selling the Maine mills to Fraser Papers, a Toronto-based pulp and paper company with three other paper mills in the Northeast. Under the deal, Fraser will pay $50 million plus working capital of about $30 million for the East Millinocket mill, and it will make royalty payments to Brookfield based on the performance of the paper product line from the Millinocket mill. Brookfield owns 48 percent of Fraser's stock and has members on its board of directors
"Those mills didn't really fit (Brookfield's) corporate plan," Conlogue said. "But they bought two mills that were shut down and restarted operations ... which was a good thing for us."
'Mills everywhere have downsized'
Millinocket area officials and analysts say they would expect Brookfield to slim down the workforce in Longview.
"When they re-established the East Millinocket and Millinocket mills ... there were some changes," said Bruce McLean, executive director of Millinocket Area Growth and Investment Council. "Some departments, such as land management and engineering, were all gone. A lot of management positions are gone, but the mill is more efficient."
Latta, the Fibre analyst, said he thinks there could be jobs cuts in Longview, though perhaps not as drastic as those in Maine.
"I know that (Fibre president and CEO) Rick Wollenberg has already had some head count reductions, so that vein might have already been tapped," Latta said, speaking primarily about rank-and-file employees.
Some management positions probably will be cut, Latta added, because the switch to a private company will reduce the work load.
In Millinocket, McLean said employment cuts probably saved the mill.
"If they hadn't made those cuts here they wouldn't have been profitable and probably would have shut down," McLean said. "From what I've seen, Brookfield is committed to making things work. You got to take their hat off to them."
"Most all pulp and paper mills everywhere have downsized," said Michael Barden, Director of Environmental Affairs with the Maine Pulp & Paper Association. "Production (in Millinocket) is still pretty good, but there is not as large as workforce."
Barden said Brookfield honored the union contracts when it took over and didn't hear of any labor issues. Messages left for union officials' in Millinocket seeking comment on Brookfield's mill ownership there were not returned.
Brookfield officials have declined to comment on future employment levels for the Longview mill, which has about 1,700 workers. Previously, they've also said Brookfield would likely continue Fibre's plan to sell its Eastern U.S. box plants and keep the Western U.S. sites.
"The workers may have a different name they wear on their shirts and hats but they are the same workers," McLean said. "I wouldn't expect too much of a change (in Longview)."
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