Financial Post Article
Wednesday, June 18, 1997
Repap execs can don chutes when sale closes
By KATHRYN LEGER
Montreal Bureau Chief The Financial Post
ÿRepap Enterprises Inc. won't confirm it, but word has it that bids for its coated paper mills and pulp operations are to be submitted by next week.
ÿ"We haven't disclosed when bids are due," Stephen Larson, chief operating officer, said yesterday. "But we are sticking to making a public announcement as to the outcome of the process in the first part of the third quarter [which starts July 1]."
ÿSome potential bidders "are still doing due diligence this week on a couple of operations," he added, noting no further details will be available at next week's annual meeting.
ÿWhat is certain is the tight deadline Repap faces because of debt obligations that come due at the end of July. On July 31, it will need $250 million to $275 million to service debt at four banks and pay an additional lender. The day after, it must find US$130 million for convertible debentures.
ÿFor now, the company is not trying to work out new agreements for these obligations, Larson said. But he acknowledged rumors that suggest management is still considering operating the company as a whole, albeit on a smaller scale, if bids are insufficient.
ÿ"That question may come up," he said. "We are seeing improvements in markets for coated paper [about 80% of Repap's business] and the performance of the company is better." However, continuing some or all operations under current management is less likely, even though "all alternatives are still being looked at."
ÿRepap's stock (RRP/ME) has been in the doldrums since the company failed to merge with Avenor Inc. and no other bidders have emerged. It closed yesterday at 69›, down 1›, and near the bottom of its 52-week range of $5.85 to 50›.
ÿDespite Repap's tricky financial situation and the dramatic drop in stock value, top executives will get handsome golden handshakes if there are layoffs afer the company is sold.
ÿUnder agreements dated June 17, 1996 -- shortly before Repap formally began looking for a buyer -- founder and chief executive George Petty would be paid $3 million, or five times his annual salary.
ÿLarson, under an employment agreement signed when he was recruited a few months before from Domtar Inc., would get $2.1 million, or 4.5 times his salary.
ÿRonald Sumner, executive vice-president of finance, would be paid $1.6 million, or four times his salary.
ÿTwo other managers would receive three times their annual salaries of $350,000 and $306,000 respectively.
ÿLarson said the parachute agreements were put in place "given the uncertainty of the outcome" of selling off the company. Bidders buy employee and management expertise when they buy a company and any parachute costs "are typically absorbed by the buyer."
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