GNP gets only 1 offer Belgravia bid has conditions

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BANGOR – Belgravia Paper Co. is the only official bidder for Great Northern Paper Inc., but it may not end up as the only buyer of the bankrupt mills in Millinocket and East Millinocket.

It’s possible that, should it buy GNP, Belgravia would sell some of the assets to another company.

But first, the Vancouver, British Columbia, company must decide before 9:30 a.m. Friday whether it wants to continue its effort to buy both GNP mills.

A Tuesday afternoon deadline for other companies to submit qualified bids passed without any of the six suitors who have studied the mills in the last couple of months submitting an offer.

“We did not receive any other offers,” Richard Mikels, a Boston attorney representing Great Northern, said Tuesday evening. “Belgravia at this time is the only bidder.”

Jim Giffune, Great Northern’s chief executive officer, said he was disappointed that Belgravia was the only qualified bidder. He said informational packets about the mills and their financial operations were distributed to nearly two dozen companies.

“I’m disappointed there weren’t bidders in addition to the ones who have been seriously courting the company, but I’m not surprised because we haven’t heard very much from the others for some time,” Giffune said during a telephone interview Tuesday night.

Several sources said at least three companies were serious about bidding for the century-old paper company in northern Maine, but the companies refused to pay Belgravia a $5 million “breakup” fee if it was outbid during an auction of the mills.

Until Tuesday night, Belgravia’s $91 million offer for Great Northern was considered to be a “stalking horse bid” that other interested buyers would have had to meet or beat during an auction, which was scheduled for Friday. Belgravia, in its position as “stalking horse,” was allowed to tell other companies that they must bid at least $2 million more and they must be willing to pay Belgravia a $5 million “breakup fee” if they are successful in topping the Canadian firm’s offer.

On Feb. 18, U.S. Bankruptcy Judge Louis H. Kornreich approved the “breakup fee,” stating it was not his place to interfere with the negotiation of a contract between Great Northern and Belgravia unless the agreement was made without sound business judgment. He said it was.

His ruling was appealed by the official unsecured creditors committee, and a U.S. District Court judge ruled Monday that the appeal was denied.

Belgravia’s $91 million bid is filled with conditions, such as the successful negotiation of union contracts with Great Northern’s 14 unions and satisfactory discussions to secure suppliers and customers.

According to a court document filed Tuesday by the unions, negotiations with Belgravia have not been as successful as they were with two other potential buyers. Those companies, however, did not submit bids Tuesday.

“As recently as [Tuesday] morning, the unions have expressed again in writing their willingness to continue to meet with Belgravia, while voicing the unions’ continued frustration at the apparent unwillingness or inability of Belgravia to respond constructively to the unions’ proposals,” the unions’ attorneys wrote.

“At the same time as negotiating with Belgravia in good faith, the unions have met with several other serious potential purchasers of the mill,” the unions’ court document continued. “Despite having begun these negotiations weeks after having first offered to meet with Belgravia, the unions have already reached [a] tentative agreement with two other potential purchasers, demonstrating the unions’ recognition of the need for flexibility and cooperative relations in order to assure the economic survival of the mills.”

Another major requirement that Belgravia wants satisfied is that a landfill and other properties transferred last year in a controversial manner from Great Northern to its parent company, Inexcon Maine, be returned.

Great Northern has filed a lawsuit in federal bankruptcy court against Inexcon Maine and one of its owners, Lambert Bedard, that asks a judge to rule that the GNP land transfer to them was illegal.

The land transfer lawsuit is one of many issues pertaining to Great Northern that is on Kornreich’s calendar on Friday. Court convenes at 9 a.m. in the federal building in Bangor.

Kornreich also must consider whether to approve Belgravia as the only suitable buyer of Great Northern. According to a deal worked out in early February, Great Northern agreed to adhere to specific, time-sensitive deadlines to sell the mills. In exchange, Great Northern’s primary lender, Boeing Capital Corp., would agree to finance nearly $13 million to keep the mills heated through April 21.

Besides Tuesday’s deadline to receive other bids, this Friday is another deadline for Great Northern to have an actual buyer approved by the bankruptcy judge. The last of the deadlines is April 21, for the buyer to sign an official purchase agreement and take over the ownership.

On Friday, Kornreich must review and rule on numerous objections to the sale and the transfer of contracts from Great Northern to the new owners. At least eight entities, from suppliers to Great Northern’s 14 unions to its creditors, are objecting to the sale.

Great Northern’s unions, in the court document filed Tuesday, stated they objected to the sale because Belgravia has not been successful in negotiating an energy contract with Brascan Energy Marketing Services Inc., the primary power supplier to the mills.

The unions claim that Belgravia was “chilling competition to bid” by agreeing to assume $12 million in secured debt that Great Northern owes to Brascan, something other suitors might not have been able to do. By putting an alleged chill on bidding, and by allegedly stalling in its contract negotiations with the unions, Belgravia “then will enforce inequitable conditions” during future contract talks.

Brascan is objecting to the sale, too. In court documents filed Tuesday, Brascan stated that “Great Northern and Belgravia have failed to satisfy the statutory requirements of providing adequate assurance of future performance under Brascan’s contracts.”

The unsecured creditors are objecting to the deal and stated in court documents that no money would be available to pay them any of the money they are owed.

“The proposed purchase price is substantially less than the amounts that are owed to Great Northern’s secured, administrative and priority claimants,” wrote Jay Geller, a Portland attorney representing the official unsecured creditors committee. “Accordingly, if the court approves the sale motion as drafted, there will be no distribution to holders of unsecured claims, and this case will have become a glorified foreclosure sale for the primary benefit of Great Northern’s secured creditors.”

But if Kornreich approves the sale of the two mills to Belgravia, there may be changes in ownership later.

According to sources close to the sale process, Belgravia may be in negotiations with one or more companies to either partner with them or sell them the East Millinocket facility, which manufactures directory paper. Belgravia’s primary interest in Great Northern is rooted in the No. 11 supercalendered paper machine in Millinocket. That machine is considered by some analysts in the paper industry to be the premier producer of supercalendered paper in North America, and would be a jewel in Belgravia’s chest of four paper mills throughout the United States and Canada.

“In bankruptcy proceedings, deals are made on the courtroom steps,” said the source, who asked not to be identified. “Things can change very radically over the next 24 hours depending on how the parties decide to play.”

In the Millinocket-area towns on Tuesday, most of Great Northern’s 1,130-person work force and residents anxiously waited to hear news about bidders for the company, which has been idle for the past 83 days.

Although many people declined to comment about Belgravia’s being the only bidder, the disappointing look on their faces revealed their feelings. Many workers, some second and third generations, said they would not go back to work at the paper company, but would seek employment elsewhere even if it meant leaving the Katahdin region and working for a lot less money.

Millinocket Town Manager Gene Conlogue said he was really surprised to see only one bid for Great Northern.

“It’s disappointing to think that only one company actually ended up with any kind of bid at all,” said Conlogue. “There is real value here, and for whatever reason other companies chose not to seize the opportunity. I really don’t get it. We have $400 million worth of assets in these two paper mills.”

Conlogue said he wondered whether the pending legal questions about the land parcels held by Bedard, the company’s owner, might have caused some companies not to bid. He said Millinocket would move on and work with a new owner.

Clint Linscott, chairman of the East Millinocket Board of Selectmen, said officials were disappointed to see only one bid. “We are going to work with what we have got and do the best we can,” he said. Linscott said selectmen plan to continue efforts to reduce budgets and operate the town more efficiently. East Millinocket has cut about $700,000 from the current budgets and plans to cut as much as $1.5 million from the upcoming budget proposals.