April 07, 2020

Analysts: Mill may sell better to foreign company

BANGOR — You wanna buy a paper mill? If you’re thinking “yes” and you’re partial to Maine, your chances have just improved. On Thursday, the number of paper mills for sale in the state grew from two to three.

Bowater Inc. has joined Kimberly-Clark Corp. and the creditors of the Tree Free Fiber Co. in seeking buyers for their Maine plants. Bowater announced Thursday it is ready to unload the century-old mill in Millinocket it acquired seven years ago as part of a larger, $322 million deal.

How much does Bowater want for the aging mill? Company officials are not quoting any asking price but industry analysts suggest there could be a real deal for a risk-taking company looking to get a foot in the door of the U.S. market for telephone directory paper and coated papers — the two products made in Millinocket.

“Obviously, it’s not a cost-effective mill,” says Mark Diverio, director of equity securities at UBS Securities in New York. “If it was making money, Bowater wouldn’t be selling it.”

In the parlance of Wall Streeters like Diverio, Bowater is “consolidating and monetizing” — upgrading the nearby East Millinocket newsprint mill with a $220 million capital improvement plan while selling off the underperforming directory and coated papers plant down the road. The Bowater strategy is the popular approach being taken by papermakers across the country, focusing on their core products and shedding anything that is taking away from the bottom line.

To Main Street, consolidating means simply that a mill may be mothballed and 900 people put out of work. Diverio said it is highly unlikely a competing U.S. paper producer would be interested in the aging, underperforming Millinocket mill. Canadian or European producers would be more likely canditates.

Such a foreign investment, Diverio says, would follow a larger pattern with northern European companies looking for a North American foothold. Stora of Sweden has expanded into Nova Scotia and UPM Kymmene of Finland has purchased a coated paper mill in Minnesota.

Alliance Forest Products of Quebec also is looking to the United States in its expansion plans, buying a mill in Alabama.

However, uncertainty clouds the future of papermaking worldwide with economic dislocations in Asia and low profitability a chronic symptom of U.S. producers. Finding a buyer for Millinocket may be determined as much by luck as the concerted efforts of Bowater and the stakeholders in the area’s economic future.

“On the surface of it, if all goes as planned, it’s not bad — they invest in one mill and find a buyer for the other,” said Thomas McBrierty, the state’s commissioner of the economic and community development, after learning of Bowater’s plans. “But there are still a lot of issues out there.”

On top of McBrierty’s list of concerns is the need to pour new capital into the Millinocket mill in order to modernize the machinery. While the commissioner sees the positive side to the announcement — the Millinocket mill is not being immediately shut down and partially dismantled as was the case with Kimberly-Clark in Winslow — it still has suffered from underinvestment.

“It’s a lot different than Kimberly-Clark because they’re going to keep the mill running while they look for a buyer,” McBrierty said, “but there are still a lot of questions.”

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