March 28, 2024
BANGOR DAILY NEWS (BANGOR, MAINE

Wall Street gem no Millinocket hero

MILLINOCKET — Wall Street analysts are touting Bowater Inc. as a shining example of a company that has dramatically turned itself around. In three years, the newsprint giant has gone from being one of the worst-managed to one of the best-managed companies in the paper industry.

“It’s the only company in the whole industry that I carry a strong buy recommendation on right now,” said Mark Wilde, the managing director of equity research for the forest and paper products industry at the New York City firm of BT Alex Brown Inc., a subsidiary of Bankers Trust New York Corp.

Bowater, as have many other companies in the paper industry, has eliminated jobs, cut costs, paid down debt, sold noncore businesses and is being very cautious about making capital investments, all to position itself better in today’s competitive global markets.

These efforts have not come without a cost.

Union leaders, who gathered on a recent wintry day in the tiny basement office of an old bank building in East Millinocket, know all about the human costs of corporate restructuring and global competition on small, one-industry towns in Maine. These leaders, who represent workers at Bowater’s Great Northern Paper Co. pulp and paper mills in East Millinocket and Millinocket, are frustrated.

“We have seen many different faces, new owners come and go,” said Lucien Deschaine, an international representative of United Paperworkers International Union, as he packed up his briefcase after a recent meeting with local union leaders.

Deschaine says the dark cloud of uncertainty that began to form in 1986 hasn’t lifted yet for paper mill workers in these communities. He says people in Millinocket and East Millinocket haven’t seen multimillion-dollar capital investments at Great Northern’s Maine paper mills since the early 1980s.

Great Northern Nekoosa, the former parent company of Great Northern, made promises of big investments, Deschaine says. For the sake of job security, the unions addressed the company’s contract concerns. Georgia-Pacific Corp. took over Great Northern Nekoosa and offered a lot of maybes, a joint venture, a new tissue mill. Then came Bowater and a new beginning.

“We worked with management, addressed efficiencies, cut costs and gave long-term labor agreements. It’s time for the company to put their words away and put money into these mills,” said Deschaine.

Union leaders say the results of a study to determine Great Northern’s future was to be complete by September, then later this year. Now they don’t know when it will come, but they believe it will bring more layoffs.

“People want to know, am I going to be working here in 1998 and am I going to be living here in 1998,” said Deschaine.

Great Northern officials say they hoped to complete a plan for the Maine pulp and paper mills this year, but other alternatives have developed in recent months, and a decision is not likely by year’s end.

“These are important decisions,” said Great Northern President Don McNeil. “We are making every effort to do what is best for the company and its stakeholders and will take the time necessary to accomplish that.”

Bowater turnaround

Bowater Inc. purchased Great Northern in December 1991. It had been an old British company that separated its North American operations in 1984. “They didn’t always invest capital wisely. They tended to overinvest capital, which destroys returns on investments,” said Wall Street analyst Wilde.

By the early 1990s, Bowater’s competitive position in the newsprint business was eroding. The price of newsprint dropped and stayed low until 1994. But the New York City analyst says all of that changed three years ago when Arnold M. Nemirow became Bowater’s president and chief operating officer.

Wilde says Bowater, the world’s largest producer of newsprint and telephone directory paper, became one of the best-managed companies in the paper industry by making a series of smart moves. It cut costs by $150 million. It sold a business forms company and used the proceeds along with other profits to pay down debt. It got more disciplined about capital spending. Bowater bought back some of its own stock, a smart move for an undervalued company, says Wilde.

“If Arnie [Nemirow] had not come to Bowater and taken some of the moves he took, I don’t think Bowater would exist as an independent company today,” said Wilde. “It was a situation where if he didn’t do it, somebody would have done it for them. They would have been taken over.”

The New York analyst says another smart move that could pay Bowater future dividends is managing its timberlands as a separate business. In July, Bowater announced it was consolidating its U.S. and Canadian forest and wood products operations into a new division, the Forest Products Division. Bowater owns or controls about 3.6 million acres of timberland in six states and Canada with about 2 million of those acres in Maine.

Separation of these two sides of the paper operation is a trend across the pulp and paper industry with Georgia-Pacific Corp. completing its separation last week. It is done so that companies can increase shareholder value on the more stable timber stocks. It also aims to encourage better management of each entity.

“They want the market to focus on the value of the timberland assets,” says Wilde. The analyst says Bowater is tremendously undervalued company right now. “There is probably $35 to $40 a share [of value] in just timberlands.” The analyst said he would value Bowater’s 3.6 million acres at $1.4 billion, far more than the company’s current book value listing of about $400 million.

Wilde says Bowater won’t just manage the forest to grow trees for pulp logs to feed its paper mills, but will look for ways to get higher-value products from the timber including building materials.

Paper’s future

Wilde and Great Northern President McNeil say the potential for growth in paper products is tremendous in world markets, especially in developing countries in Asia and Latin America.

The news isn’t so good for U.S. paper markets, which officials describe as mature, with growth or demand rates projected to be little or flat. For example, the demand for newsprint is projected to grow by one-half of one percent in North America from 1997 to 2011; by 2.5 percent in Europe; by 6.5 percent in Asian countries; and by 4.5 percent in Latin American countries, according to information from Resource Information Systems Inc. The Asian statistics are 3 months old and do not reflect the impact of the region’s present economic crisis.

“The next year or two is looking ugly again,” said Wilde. “The issue right now is this mess in Asia, which is not good for the paper industry.”

The New York analyst says the Asian currency crisis has made it more difficult for some pulp importers to sell in these countries. This in turn causes a buildup of inventory around the world and causes prices to fall.

“It looks like it’s going to be a very rough year for the paper industry next year because of the effect the Asian crisis is having on both demand and on commodity prices,” said Wilde. “This is not good for mills up in Maine where people have been thinking about investing a little more capital in them again.”

Wilde predicts Great Northern probably will scale down its operations and, at a later date, make capital investments.

Next at Great Northern?

When Bowater bought Great Northern, officials talked about spending $500 million to $700 million for a new mill that would produce coated paper. “That is not the course they are on today,” says Wilde.

Bowater is considering adding a thermomechanical pulp mill in Maine, either in East Millinocket or Millinocket. A TMP mill uses heat and mechanical energy to convert wood chips into pulp, which is made into paper. TMP’s high yield makes maximum use of a mill’s wood supply. A ton of wood produces nearly a ton of high-quality pulp. Nearly 100 percent of the wood is converted into pulp in a TMP mill compared with only 50 percent in a conventional chemical pulping process.

McNeil, Great Northern’s president, says the thermomechanical pulp technology lowers production costs and improves quality of newsprint. “If you don’t have a TMP plant, you are less competitive,” said McNeil. Paper mills that have TMP facilities no longer will use pulp logs to make paper. “What that leads to is 100 percent chip supply to the mills,” he said. Instead of grinding up pulp logs to make paper, chipped sawmill waste is used. Today, two-thirds of Great Northern’s fiber supply to feed its mills comes from sawmill waste.

McNeil says the biggest advantage the Northeast has is its fiber resource. “The northern spruce fiber is the world’s best fiber,” he said. It doesn’t grow as fast as southern pine, but it’s better for making lightweight papers, such as the 18-pound telephone directory papers made at Great Northern.

McNeil said another concern in Maine is “Can the proper balance between environmentalists and industry be reached?”

“Having the greatest trees in the world doesn’t do you any good, if you are not allowed to cut them,” said McNeil. The company president says a balance has to be found so the forest remains sustainable for the forest products industry, tourism and wildlife. Until that issue is settled, McNeil said, he believes corporate leaders will think long and hard before they invest millions of dollars in Maine. “I’m not saying Bowater is not going to invest in the assets we have. I think money will be spent probably to modernize older mills to make them competitive to make these lightweight papers,” said McNeil.

McNeil says future strategies for Bowater’s Maine mills will mean fewer jobs. “We are making a lot more tons of paper with a lot less people.”

From the long-term perspective, Wilde says the only way Bowater and other U.S. newsprint producers can grow is by consolidation, or big companies buying up smaller companies. Bowater and its big competitors also may look for opportunities in South America and Asia where consumption is growing. “Because those markets are pretty volatile, you are not going to see them plop $500 million into Brazil or Indonesia, but they may look for ways to make small type investments in those markets,” said Wilde.

But far from the fast lane of Wall Street and Bowater’s corporate board rooms in Greenville, S.C., people, who work in the mills and who live in these two northern Maine communities are waiting to hear what the future will bring.

“We need an answer to the $64,000 question. What is the future?” asked John Davis, 42, of Millinocket, president of UPIU Local 12.

Deschaine says there will be an announcement from Great Northern. “But I don’t think it’s the announcement that everything has been staged for since 1987. There may be some money and some automation coming in, but there is going to be a cost to the people who have worked so hard to sustain their employment.”

The international union official says he is bothered by the paper industry’s lack of social conscience. “A lot of decisions are made for the sake of the stockholder, but there is a tail end to that, and that is the effect on the immediate family and the community, especially in areas like Millinocket and East Millinocket where there are no four or five other employers waiting to hire these people,” said Deschaine.

Local union leaders like George Tapley, 40, of East Millinocket, who is a president of the UPIU Local 37 and has worked at the mill for 22 years, says he can’t understand why Bowater would consider investing in what he called volatile Third World countries or would consider buying up smaller mills elsewhere when it already has the largest privately owned hydroelectric system, a tremendous wood resource and a skilled labor force. “Why can’t we make low-cost paper?” asked Tapley.

GREAT NORTHERN PAPER COMPANY – BOWATER

Maine employees: 1,725 in Maine

Salaried workers: 343

Hourly workers: 1,382

Employees nationwide: 5,093

Largest workforce and year: Great Northern’s peak employment was in the 1970’s, when it employed more than 4,100 people.

Primary products: Newsprint, white and yellow telephone directory paper, light-weight coated papers that are used in newspaper inserts and catologs

Maine timberlands: 2 million acres; Worldwide timberlands: 3.6 million acres in the U.S. and Canada.

Wages for Maine, 1996: $106 million

Bowater corporate profits 1996: $200.2 million


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