Financial Post Article
Tuesday, April 15, 1997
Repap ready to sell company piecemeal
By KATHRYN LEGER
Montreal Bureau Chief The Financial Post
ÿRepap Enterprises Inc. said yesterday its bankers have given it enough breathing room to avoid a
cash crunch and to proceed with plans to sell its coated paper and kraft pulp mill assets.
ÿRepap also said for the first time that it will consider selling off assets piecemeal to the highest
bidder.
ÿRepap said it has instructed financial advisers Dillon, Read & Co. Inc. and TD Securities Inc. to
seek "firm bids for each of the company's three operating subsidiaries."
ÿA number of companies, both Canadian and foreign, have expressed interest in buying individual
assets.
ÿBut now they will be working inside a clearly defined process, Repap president Stephen Larson
said in an interview.
ÿ"We have set up a new process and a new time frame and we expect bids in by the end of June or
July," Larson said. "We have the support of our lenders and, accordingly, can take the time
necessary to ensure that the best possible value is received for our shareholders."
ÿRepap shares, which plummeted to the ranks of a penny stock last week amid concerns about the
company's financial health, jumped 19› on the news to close at 74›.
ÿToronto Dominion Bank is said to have stepped up to the plate to provide increased operating
leverage, both at the parent company level and for Repap's New Brunswick subsidiary.
ÿLarson said Repap managed to secure a $20-million increase in the New Brunswick unit's operating
credit facility, but he would not comment on what arrangements had been worked out at the tightly
squeezed corporate level.
ÿAn interest payment of about $20 million was due today on second priority notes secured on the
New Brunswick operations.
ÿAnalysts speculated that Repap is likely close to selling one of its three remaining core assets.
ÿ"I don't think the banks would have bailed them out without knowing that one or two of the assets
are being well bid," said John Duncanson, an independent forestry analyst in Toronto.
ÿ"The banks have a better shot at getting their money back this way than if the subordinate debenture
holders had forced a sale."
ÿHad Repap been forced to file for credit protection for its more than $2.2 billion in debt obligations,
the banks would have been behind first-priority and perhaps even second-priority bondholders in
recovering their investments. Shareholders would only benefit if there was excess cash after that.
ÿLarson would not say how close Repap came to filing for credit protection. "We looked at all the
alternatives but the fact is that will not occur," he said.
ÿDuncanson believes Domtar Inc., acting in partnership with UPM-Kymmene Corp. of Finland, will
make a bid for Repap's coated paper operations in New Brunswick.
ÿDomtar would not comment yesterday on whether it has prepared a bid, saying only that "we
believe Repap has good quality assets that could be a logical fit."
ÿJaak Puusepp, analyst at Woodsmith (Research) Corp. in Vancouver, is not ruling out the possibility
of Repap re-inventing itself, perhaps by selling off only one or two of its assets instead of all three.
ÿRepap could sell its kraft pulp and paper operations in Manitoba to one of several packaging
companies that have shown interest, and then concentrate on developing one or both of its remaining
coated paper operations in New Brunswick and Wisconsin.
ÿThe company is said to put the value of its Manitoba operation at between $170 million and $200
million, and Puusepp and Duncanson place the net value (after debt) at about $176.8 million.
ÿThat would be enough to pay down other obligations while considering whether to sell the coated
paper operations.
ÿRepap has told analysts it expects its coated-paper operations to be cash-positive by the end of the
year and late last week even hinted it might consider an equity issue to eliminate some of its
convertible debentures.
ÿLarson said yesterday that even though individual assets will now go up for sale, the board is not
precluding the sale of the entire company.
ÿ"It's a very different company now than when we began the process [of looking for a buyer last
July]," Larson said.
ÿRepap's British Columbia and Alcell technology operations, both cash drains, are now off the books
and the market for coated paper appears to be recovering with orders increasing.
ÿPuusepp figures that Repap, without B.C. and Alcell, has a minimum net worth, after debt and
before tax pools, of $62.6 million (41› per share).
ÿThat analysis assigns a net worth (after debt) of $121.5 million for Repap New Brunswick, and
$163.7 million for Repap Wisconsin. The parent company has an estimated $439.1 million in
convertible debentures and debt outstanding.
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