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Investment group signs ‘tentative’ agreement to buy Katahdin region paper mills

Kevin Bennett | BDN
Kevin Bennett | BDN
The East Millinocket paper mill is seen on Feb. 9, 2011.
By Nick Sambides Jr., BDN Staff

MILLINOCKET, Maine — In a move that could create as many as 200 jobs in the Katahdin region, a San Francisco investment group has signed a tentative agreement to buy the East Millinocket and Millinocket paper mills for an undisclosed price, a group partner said Monday.

Officials from Meriturn Partners will visit the Katahdin Paper Co. LLC mills in East Millinocket and Millinocket on Wednesday as steps toward completing the deal to buy and operate both, said Lee C. Hansen, a partner at Meriturn.

“We have signed a letter of intent to acquire the business, [and] we will begin to meet with the parties involved, such as the unions, DEP [Maine Department of Environmental Protection] and the local government entities,” Hansen said during a telephone interview Monday.

The deal’s deadline is April 29. If completed, it would restore as many as 150 full-time manufacturing jobs at the Millinocket mill plus dozens more to help operate and supply a new biomass boiler that will relieve the mill of its costly addiction to foreign oil that forced its closure in September 2008, state officials said.

The Millinocket mill employed about 175 workers when it closed, Millinocket Town Manager Eugene Conlogue said Monday.

“This is really big news for the whole region,” said Rosaire Pelletier, former Gov. John Baldacci’s special forest products industry adviser, whom Gov. Paul LePage kept on for the remainder of his contract to help sell the two mills.

LePage and other state agents will meet Meriturn officials later this week.

“In the upcoming days and weeks, we will be working closely with the parties to reach the conditions that have been set forth to ensure a shutdown is not in the foreseeable future,” LePage said in a statement.

Given the typical ratio of secondary jobs generated by the creation of manufacturing jobs of 5 to 1, the Katahdin region could see as many as 1,000 jobs created by the mill’s restart, Pelletier said.

East Millinocket’s mill employs about 450 workers, Pelletier said.

Meriturn specializes in redeveloping industrial sites and manufacturers. According to its website, meriturn.com, Meriturn specializes “in middle-market, corporate restructurings and turnarounds. We invest in basic industries (manufacturing, distribution, services, etc.).”

The company typically handles companies with $30 million to $250 million in revenues; as much as $15 million of capital required; businesses based in North America; and financial institutions with more than $500 million in assets, the website states.

Through its Katahdin Paper Co. subsidiary, Brookfield Asset Management of Toronto owns the two mills and the company that operates the East Millinocket mill, Twin Rivers Paper Co. It also owns Brookfield Renewable Power, which owns 186 megawatts of electricity-producing dams on the Penobscot River and other bodies of water in Maine, according to brookfieldpower.com.

The Millinocket mill has a 180,000-ton-per-year supercalendered paper machine capable of producing paper for catalogs, magazines and retail industry fliers. It closed in September 2008, eliminating as many as 208 jobs, because of the mill’s reliance upon foreign oil to generate steam as part of the papermaking process. Brookfield Asset officials said that rising oil costs forced the closure.

Brookfield officials told union workers in 2008 that they dropped their plan for an energy upgrade at the Millinocket mill because it would take up to $50 million over two years to install a biomass boiler to power the plant and cover expenses during the 18 months to two years it would take to get the boiler running.

Pelletier said some of the businesses that have offered to partner with Meriturn to run the mill’s biomass component have promised that the installation could take as little as six months. The amount of state aid required to assist in the Millinocket restart was not available Monday.

East Millinocket’s is an integrated pulp and paper facility and a leading North American supplier with the capability to offer products with high recycled fiber content. It operates two paper machines that can produce 250,000 tons a year of uncoated groundwood papers for directory, catalog, book, insert and newsprint applications.

Combined, the mills were the region’s top employers before the Millinocket mill closed. Workers at the East Millinocket mill were informed Monday morning of the looming deal.

Union agreements are among several issues to be addressed before the deal is completed, said Andrew Willis, a Brookfield spokesman. The others include arrangements to establish a biomass cogeneration facility at the Millinocket mill to relieve the mill of its expensive dependence on oil; set property taxes — and seek tax breaks — with local municipalities; and finish environmental and commercial reviews begun in December, Willis said.

If they haven’t done it already, Brookfield and Meriturn also must hammer out an agreement by which Meriturn can buy electricity for its mills, officials said.

The environmental concerns include ultimate responsibility for what some sources have called the oldest portion of the mill’s landfill in East Millinocket, which the mills used for decades, Hansen said. The landfill has been cleaned up somewhat, but fears persist about pollutants within it.

“That’s one of many,” Hansen said of the conditions. “The East Millinocket mill has not made money for years, and the Millinocket mill has to be restarted.”

Pelletier said that state officials would tackle the landfill’s problems later this week, but doesn’t believe that the dump requires more than a capping, which could be deferred for 10 years. Hansen said he doesn’t see anything that would stop the sale.

“I wouldn’t do this if I didn’t believe the company would survive and, with some capital expenditures and product development, return to profitability,” Hansen said.

After weeks of discussions, Meriturn began its due diligence — the final, intensive scrutiny of a prospective acquisition — in December, Hansen and Pelletier said.

Duane Lugdon, Maine’s United Steelworkers Union international representative to the 320 USW members at the East Millinocket plant, said employees would work with Meriturn to secure the mills’ future.

As an example of how unions can help, he cited USW workers in Old Town taking a 20 percent pay cut for eight months to help New York City-based Patriarch Partners buy the former Georgia-Pacific paper mill. The workers were repaid when the mill became successful again, he said.

“These [Katahdin region] workers have been through tremendous pain in recent years and it will not be easy for them to consider changes, but at the same time the future for the Katahdin region is wrapped up in these two mills,” Lugdon said. “I am sure the employees will be prepared to do what they need to do to ensure that future.”

“The emphasis really needs to be on securing the future for these two mills,” he added.

The mill restart and continued operations of the East Millinocket plant will be a significant boost to the Katahdin region, Conlogue said.

“It will bring back some stability to the area and hopefully that will help us start on another rebound, economically, in the town and the area,” Conlogue said. “We are cautiously optimistic that this is going to occur, but it is not a done deal, and there are a lot of details left to be worked out if the deal is going to close on April 29.”

Rumors of a looming deal to buy both mills have floated through the Katahdin region since Patriarch Chief Executive Officer Lynne Tilton confirmed in July 2010 that her company was interested in buying them.

Patriarch and Versa Capital Inc., a commercial real estate investment and financing firm from Philadelphia, were among the entities that began due diligence before halting the process, a state official said.

Pelletier and the Baldacci administration had been working to restart the Millinocket mill since June 2008, shortly after Brookfield announced its intention to close the mill, Pelletier said.

“Originally we were not looking at a group to buy the mill. Originally we were just looking for investors to do the biomass conversion. Then we asked Brookfield if they would be interested in us looking into someone to buy the mills from them as a package,” Pelletier said.

Pelletier expressed satisfaction at finally helping a buyer work through the myriad transaction details with Brookfield, “but I will feel even better when the deal is finally done,” he said.

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