Globe and Mail article - More Bad News
Repap close to the financial brink
Sources say company must find buyer or obtain
more credit next week - otherwise, it could go under
Friday, April 11, 1997
By Patricia Lush
British Columbia Bureau
Paper maker Repap Enterprises Inc. appears to be close to the financial brink.
Suppliers are demanding cash on delivery and management abruptly fired about 25
people--vice-presidents, managers and support staff--at the Montreal head office yesterday.
Sources close to the company say the crunch is likely to come early next week: Either the company
finds a buyer or buyers or gets further operating credit from its bankers. Otherwise, it could go
under.
It's like "slow death--very, very painful," vice-president Daniel Veniez said.
George Petty, Repap's founder, chairman and controlling shareholder, was said to be in and out of
meetings all day yesterday and not available to comment about the future of the company, which has
4,000 employees and operations in Manitoba, Quebec, New Brunswick and Wisconsin.
Late Wednesday afternoon, Repap issued a cryptic news release saying that "with assistance of its
financial advisers, it is actively reviewing the alternatives available to it to maximize shareholder
value."
Some companies have expressed interest in the company or in some of its assets, Repap said, adding
that its preference still is to sell or merge the company as a whole.
"[Repap] is also in discussion with its lenders to address the liquidity necessary to carry out this
process," the release said.
"There is activity--I can't say what," Mr. Veniez said in an interview. "Talks are at a very sensitive
stage."
Repap issued the news release on the urging of its lawyers, in response to investors' concerns and the
beating its shares have suffered in recent trading.
Repap shares reached a low yesterday in heavy trading. The stock, which dropped 2 cents to close
at $1.09 on the Toronto Stock Exchange, has been half hammered since March 26, when
shareholders of Montreal-based Avenor Inc. soundly rejected a $2.44-billion proposal by Avenor
management to take over Repap.
Avenor was offering one of its shares, then trading at $23.10, for every eight Repap shares tendered.
But shareholders who voted down the deal said they were loath to take on Repap's more than
$2-billion in debt.
"We told the marketplace after the 'No' vote that we would get back to them the following week
[but] we didn't," Mr. Veniez said, and "with the absence of information comes the assignment of evil
intent."
With Repap now, just two weeks later, in such a financial struggle, "it really makes you wonder what
Avenor was thinking," said one industry analyst, requesting anonymity.
He and several other analysts said yesterday they are confident Repap will find buyers for its
Wisconsin and New Brunswick subsidiaries.
"It's a buyers market and these are good assets," said John Duncanson, a Toronto-based
independent analyst.
People from Domtar Inc., a paper-and-packaging producer also based in Montreal, have been
kicking the tires at Repap mills in the past couple of weeks, and Domtar is thought to be a leading
contender to buy one or more Repap operations.
A week before the Avenor shareholders' meeting, Domtar managers had visited their counterparts at
Avenor, proposing a three-way merger. But Avenor apparently was not interested.
Now, Domtar and its strategic partner, UPM-Kymmene Corp. of Finland, "are in no hurry," Mr.
Duncanson said, so they can hold out for a good price.
Other contenders for the Repap operations are said to include giants Weyerhaeuser Co. of
Tacoma, Wash., and Greenville, S.C.-based Bowater Inc.
"Anybody interested in buying assets has a strong hand," said Ross Hay-Roe, an analyst at Equity
Research Associates in Vancouver.
A couple of analysts said Repap appears to be a few steps behind its former subsidiary, Repap
British Columbia Inc. The company dumped its debt-laden B.C. unit a little more than a month ago
as part of a premerger agreement with Avenor. Repap B.C. immediately filed for protection under
the Companies' Creditors Arrangement Act.
Now, with the jobs of as many as 6,000 people in northwestern British Columbia at stake, Repap
B.C. managers, the court-appointed monitor, the province's jobs protection commissioner and
outside consultants are desperately trying to find a way to keep the company operating.
Analysts interviewed yesterday had as many questions as answers about Repap.
Some wondered: If the company sells its assets, each of which is a stand-alone, wholly owned
subsidiary with its own debt load, will there be anything left for shareholders of the parent?
Three industry watchers talked about how much Repap's tax credits are worth, with one saying:
"People put far too much value on [them]." Another disagreed, calculating that, with those tax credits,
Repap shares today are worth as much as $2.50 each.
"It's the $64,000 question," Mr. Duncanson said. |
