IP cutbacks concern Bucksport, Jay mills

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BUCKSPORT – International Paper Co. announced Tuesday that it plans to restructure its operations, calling into question its future association with its mills in Maine.

International Paper, the world’s largest forest products company, indicated that it plans to make portfolio changes to concentrate on two key businesses – uncoated papers and industrial and consumer packaging. The reorganization is expected to produce annual cost savings of about $400 million over the next several years.

The 75-year-old Bucksport mill has four machines and specializes in making lightweight coated paper used in many magazines and catalogs. Paper manufactured at the mill is used in Time, Parenting and Family Circle magazines and other publications, and in catalogs for national retailers such as L.L. Bean and Lands’ End.

Bill Cohen, IP spokesman at the Bucksport mill, said Tuesday that the mill employs approximately 800 people and has an annual payroll of approximately $82 million. Cohen directed all other questions about the restructuring plan to the company’s headquarters in Stamford, Conn.

Jenny Boardman, media relations manager for IP, said Tuesday that the company has not decided how its mills in Bucksport and Jay will be affected. The Androscoggin Mill in Jay employs more than 1,000 people and, like the Bucksport mill, makes coated paper for magazines and catalogs, among other products.

Boardman said IP is considering its options for its two Maine paper mills and for other operations in the United States and Brazil.

“For the coated business, that might mean selling it or spinning it off as a separate company,” Boardman said. “No decisions have been made at this point.”

In a written statement issued Tuesday, Sen. Susan Collins said that she had spoken to John Faraci, IP’s chairman and chief executive officer, who indicated that the company was looking for a buyer for the Bucksport and Jay mills.

“It is troubling that after so many years of dedicated service, these workers are now left wondering what will happen to their jobs,” Collins indicated in the statement. “[Faraci] said he is confident that buyers will be found easily and predicted there would not be an impact on employment levels.”

Sen. Olympia Snowe said in a prepared statement that she had spoken with IP President Rob Amen and stressed to him, “how essential these mills are to the surrounding communities.”

IP has owned the Bucksport mill since 2000, when it purchased the facility from Champion International Corp. The Jay mill was opened in 1888 by Hugh J. Chisholm, who went on to become president of International Paper 10 years later, according to the company’s official Web site.

An IP official who asked not to be named said Tuesday that the restructuring would not affect the company’s plans to spend $16 million on modernizing the Bucksport mill’s wood yard. The project, which will upgrade the mill’s wood-handling operation, is in its final design stage and is expected to get under way later this year, the official said.

Jack Cashman, commissioner of the Maine Department of Economic and Community Development, said Tuesday that the Bucksport and Jay mills could benefit in the long term if they are sold or spun off into another company.

“It could be good for Maine,” Cashman said. “In either case, the emphasis would be on coated paper.”

A recent economic study indicates that the mills are ranked nationally at the top or in the middle in terms of the cost at which they produce different grades of paper, according to Cashman. He said this indicates the mills are viable.

“We feel very upbeat about the future of both mills,” Cashman said. “I don’t think they would have any problem finding a buyer.”

Lloyd Irland, a forest resources and economics consultant based in Wayne, said that focusing on a particular product, rather than being mediocre at many things, is key to competing favorably in today’s paper industry, especially against cheaper imported products.

“In a way, it doesn’t matter what you focus on,” Irland said.

The magazine and catalog market served by the mills likely will not fade away anytime soon, according to Irland. He said he wouldn’t be surprised if one or more Canadian companies express an interest in buying the mills.

“I don’t think either of these mills are in the castoff category,” he said. “I’m not worried that they won’t find any takers.”

Other aspects of the announced restructuring plan include the potential spin-off or sale of IP’s beverage packaging operations, its Kraft Papers and Arizona Chemical businesses, and its wood products operations. The company said it will close a mill in Fort Madison, Iowa, and is considering both reducing capacity at its mill in Bastrop, La., and relocating its headquarters from Stamford to Memphis, Tenn.

IP said it could end up selling some or all of its 6.8 million acres of forestlands in the U.S. The company recently sold all of its land in Maine, more than 1 million acres, to Boston-based GMO Renewable Resources LLC for $250 million.

The restructuring plan, aimed at reducing debt and boosting sluggish profits by concentrating on core businesses, would leave IP substantially smaller.

“It’s potentially almost half of the company’s earnings and cash flow,” said Steven Chercover, research analyst with D.A. Davidson and Co. in Portland, Ore. “International Paper will look very different. Clearly it’s an indication bigger is not always better.”

Job cuts are expected, but an exact number will not be known until the evaluation of the plan is complete, said Amy Sawyer, a company spokeswoman. Overall, the company has nearly 80,000 employees, she said.

“We’re looking at reducing the size of our company substantially,” Sawyer said. “I think the people impact will be commensurate with that.”

Faraci said earnings per share should be 30 percent higher by 2007 as a result of the strategy. International Paper had a loss of $35 million, or 7 cents per share, last year and warned last month that its second-quarter profits would not meet Wall Street expectations.

IP said proceeds from potential divestments could range between $8 billion and $10 billion, with about half of those proceeds slated to pay down debt. The company expects to use another 25 percent to 30 percent of the proceeds to return value to shareholders.

Shares of International Paper rose $1.56, or 5.1 percent, to close at $32.22 Tuesday on the New York Stock Exchange, where they have traded in a 52-week range of $29.76 to $43.66.

The Associated Press contributed to this report.