October 11, 2004
Paper chase | Lincoln Paper and Tissue posts a profit three months after restarting
By Rebecca Zicarelli
John Wissman didn't originally intend to buy an aging paper mill in Maine. As a consultant for Connecticut-based Fisher International, he advised financiers to the paper industry on deals like International Paper's 2000 purchase of Champion International Corp. in Bucksport. Since 2000, Wissman had worked on and off with Eastern Pulp and Paper of Amherst, Mass., owner of Lincoln Pulp and Paper in Lincoln and Eastern Fine Paper in Brewer, as executives tried to solve the financial woes that had put the company into Chapter 11 bankruptcy that year.
All that changed last Feb. 4, when Eastern tapped Wissman to help it in another effort to sell the mills. Later that day, though, U.S. Bankruptcy Judge James B. Haines ordered Eastern's assets liquidated, taking the company's future out of Wissman's hands. "I was hoping to get an arrangement with the trustees," Wissman says. "I started to try finding a buyer, but I could not find a buyer."
Just a few months later, though, Wissman had found a likely buyer ˆ himself, along with his boss, Rodney Fisher, and Keith Van Scotter, an experienced paper mill manager. Though Wissman and his partners understood that many paper mills that have been shut down and then restarted fail within the first two years, they were drawn by the Lincoln mill's role as a manufacturer of niche paper products. The trio felt the mill's deep-dyed tissue, used to make products such as bright party napkins and dental bibs, and business reply cards, the subscription request cards that fall out of magazines, could form the basis of a sustainable business. "I really had a desire to keep this thing going," Wissman says. "I found a few people who were willing to chance it with me."
So they formed First Paper Holding Corp. to acquire Eastern Pulp's assets, including the Brewer mill and company headquarters in Amherst. Haines proved receptive to First Paper's offer and after a few setbacks, including a dispute about a Finance Authority of Maine loan guarantee that ultimately was smoothed over by Gov. John Baldacci ˆ a fervent supporter of efforts to keep the mill running ˆ the $25.2 million deal closed on May 28.
Within six days, the Lincoln mill, now called Lincoln Paper and Tissue, had an order in hand and was making product. Within weeks, the mill was fully operational. Today, 340 workers are back on the job, compared with the 500 who'd been employed in Lincoln when Eastern Pulp shut down in January. The mill was humming, and Lincoln's prospects were looking brighter. At a Sept. 18 employee-appreciation-day picnic, Wissman announced that, "against all odds," the mill made a profit in August. Two days later, First Paper received the Economic Development Project of the Year award from the Northeastern Economic Developers Association.
But that doesn't mean the company is home free. It sold its Amherst offices and turned the Brewer mill over to city officials in order to focus on operations in Lincoln. Van Scotter, who assumed the role of CEO, is charged with making sure the Lincoln mill defies the trend to failure that plagues restarted mills. He's got to balance performing basic maintenance against making strategic investments to improve efficiency; deal with the escalating costs of energy and fiber ˆ the hardwood chips and softwood sawdust used to make paper at Lincoln; and keep the mill's workforce inspired. "At the end of the day, things don't happen unless people take big risks," Van Scotter says. "This was a big risk, but it was a calculated one. We felt we knew what was there."
Risking a restart
Back in September 2000, Eastern Pulp and Paper filed for bankruptcy on debts exceeding $181 million, citing declining markets for printing and writing papers, increasing prices for energy and raw materials, and the cost of making required environmental improvements. At the time, Joseph Torres, Eastern's chairman, said there were no plans to lay workers off or shut down the mill; instead, the company hoped to restructure its debt and once again move to profitability or find a buyer.
According to Jack Cashman, commissioner of the state Department of Economic and Community Development and Baldacci's point man in the recent efforts to find a buyer for Eastern Pulp, those plans seemed reasonable. "Wissman worked with the previous owners to help turn the situation around," he says. "I saw his game plan for the previous owners ˆ it made all kinds of sense, and they didn't follow it."
None of the potential buyers for the company panned out, and Eastern's debts ˆ including nearly $2 million to Pittsfield-based Cianbro Corp. ˆ went unpaid. By last March, the mills' backers opted to stop spending money to heat the mills ˆ a move that could have caused an environmental nightmare. Without heat, the mills' pipes would freeze, with ensuing spills damaging the mill beyond the cost of reasonable repair. (The state Department of Environmental Protection estimates that environmental cleanup of the site would have cost $15 million to $20 million.)
In the hope that a buyer would be found, Baldacci drew $900,000 from his contingency budget and the state DEP to heat the mills. In the meantime, Wissman, Van Scotter and Fisher pondered making an offer for Eastern Pulp. "[Wissman's] work showed the Lincoln mill, as a stand-alone entity, was viable," Van Scotter explain.
According to Van Scotter, there were four reasons that made Lincoln worth the risk of a restart. Most crucial were the two niche products, for which the mill was a strategic producer. Second was the mill's ability to make pulp, the processed fiber that is rolled into paper and tissue. "It provides us with a relatively stable cost structure," Van Scotter says. Third was the mill's energy platform; Lincoln is able to generate about 40% of its own energy needs. Finally, Van Scotter says the workforce in the area is skilled and creative, with a strong work ethic; the workers, he says, were hungry to get the mill running again.
Still, Lincoln is operating in the midst of an industry that has seen better days. Robert Rice, a wood scientist at the University of Maine in Orono who follows the paper industry, says the entire North American paper industry has been through a rough time over the last five years due to increasing production costs, foreign imports and diminished markets, particularly for the magazine paper produced by most of Maine's larger paper mills. "Mills that were marginal couldn't compete," he says "When they shut down, their source of [wood fiber] dried up, their supplier base went to other places."
The question of fiber
For mills like Lincoln to succeed, Rice says, they have to have a niche market that's too small or too specialized for many other paper companies to bother with. Lincoln's niche in tissues is crucial. "If the fiber resource is there, the tissue markets should do quite well," he says. "It isn't a skyrocketing market, but it is coming on well. But they need to re-establish themselves in that marketplace."
Those were the two big questions for Lincoln: Could the mill get its suppliers and customers back? "A hundred and twenty percent of our customers returned," jokes Van Scotter. "There are a couple who haven't returned, but the largest before are the largest now, and we've gotten some new customers the prior owner couldn't get."
Wisconsin-based Hoffmaster, a division of Solo Cup, returned to Lincoln for tissue to make into the paper napkins and tablecloths sold in grocery stores and big-box retailers for holiday gatherings. And when it comes to those pesky business reply cards, the world's largest magazine publisher, Time Inc., which publishes Time, Sports Illustrated, Fortune, Money and dozens of other titles, had purchased stock from Eastern Pulp and Paper for at least the last 15 years.
Now, Guy Gleysteen, who runs TI Paperco, Time's paper purchasing division, says he'll purchase 20% of the company's total business reply card volume from Lincoln this year. "In the spring of 2004, there were limited suppliers of this stock. As demand for paper improved, the re-launch of Lincoln Paper and Tissue could not have come at a better time," he says. "Thanks to the long-standing relationship Time Inc. had with the mills when they were part of Eastern Pulp and Paper, we were quickly able to move orders into Lincoln once the new company was operational."
Van Scotter says there is room to move into other niche markets in the future with products such as drawing paper. But to make tissue, business reply cards or drawing paper, Lincoln needs fiber. (See "From trees to tissue," p. 47.) And that's proved to be a bigger challenge than finding customers: Maine's entire paper industry is facing a fiber shortage, Rice says. It's not for lack of wood on the stump; the state's inventory of harvestable wood actually is increasing. Instead, the shortage results from a lack of infrastructure to get the wood out of the forest and into the mills ˆ be they paper mills or saw mills ˆ for processing. And with a rebounding wood-products industry for building materials, a growing wood-composites industry and increased interest in waste wood for biomass generation in the face of rising energy costs, there's increasing competition for the fiber paper mills require.
No exit
Loggers, squeezed between increasing costs for equipment, fuel and insurance, appear to be in short supply these days. "They can't afford to haul anymore," Rice says. "We've lost our cheap fiber. Part of the problem is the changing landowner base of the major fiber suppliers. But if you're willing to pay the loggers, the fiber appears. There are plenty of people who can get wood, but can the mill pay a price that allows profitability?"
In fact, fiber availability and cost top Van Scotter's list of concerns. He says the mill is getting enough fiber, though he would like to have more suppliers.
But it's only one of many concerns. He says he spends a lot of time "keeping abreast of the infrastructure. There's a lot to a pulp and paper mill. We're continually looking at investment and reinvestment in the right spots. But we can't fix everything at once."
Then there's staffing. "Even though there aren't enough jobs in the area, finding people willing and capable of working in a manufacturing environment is challenging," he says. He's found that many of the mill's former employees had already moved on to other mills, other industries. "It's almost counterintuitive, but finding the right employees is as hard as finding the right customers, if not harder."
Van Scotter says he's also asking a lot more of his employees than was asked of them before. He's renegotiated the union contract, allowing for more flexibility in what each worker can and cannot do. "If something needs to be done, anybody ought to be able to do it as long as it's safe and they have the skills," he says. "I give credit [to the workers] ˆ they bought into it, the union's been cooperative and we've gotten the right results to make this a success."
Cashman says he's spent a lot of nights worrying about the Lincoln mill and its jobs. "If you look at the economy of northern, western and down east Maine," he says, "they are natural resource based, and they've been taken for granted for some time, particularly the pulp and paper industry. Maine is not seen as a place to invest money. But if the economies of those areas are going to come back, we can't sacrifice [opportunities] that produce six jobs outside the mill for every job in the mill. Penobscot County would not be able to stand losing that many jobs."
Then, for Van Scotter, there's the challenge of the mill itself. "This is an old mill, and things break," he says. "Before we started up, we worried, 'What if certain parts don't ever operate well again?'" But the mill does operate, and both Van Scotter and Wissman say they owe thanks to Baldacci for that. The duo plans to begin reinvesting in the mill soon, within the first 12 months of operation, and to begin making significant strategic investments within the first two years.
And while neither Van Scotter nor Wissman will say just what those strategic investments might be, Van Scotter says, "While I'm not announcing it, we tell people we would like to build a new paper machine. We're interested in a variety of scenarios that would allow us to make more pulp and put it into tissue. The question is, how do we get it done? Realistically, for this to be viable over the long haul, there needs to be a plan to further develop the business."
It sounds like Van Scotter and Wissman expect to be around to do that planning. "I don't see an exit," Wissman says. "I'll be happy to own this when I retire. This mill is not an ideal fit for just any buyer ˆ I may have to train my daughters in the paper industry."
All that changed last Feb. 4, when Eastern tapped Wissman to help it in another effort to sell the mills. Later that day, though, U.S. Bankruptcy Judge James B. Haines ordered Eastern's assets liquidated, taking the company's future out of Wissman's hands. "I was hoping to get an arrangement with the trustees," Wissman says. "I started to try finding a buyer, but I could not find a buyer."
Just a few months later, though, Wissman had found a likely buyer ˆ himself, along with his boss, Rodney Fisher, and Keith Van Scotter, an experienced paper mill manager. Though Wissman and his partners understood that many paper mills that have been shut down and then restarted fail within the first two years, they were drawn by the Lincoln mill's role as a manufacturer of niche paper products. The trio felt the mill's deep-dyed tissue, used to make products such as bright party napkins and dental bibs, and business reply cards, the subscription request cards that fall out of magazines, could form the basis of a sustainable business. "I really had a desire to keep this thing going," Wissman says. "I found a few people who were willing to chance it with me."
So they formed First Paper Holding Corp. to acquire Eastern Pulp's assets, including the Brewer mill and company headquarters in Amherst. Haines proved receptive to First Paper's offer and after a few setbacks, including a dispute about a Finance Authority of Maine loan guarantee that ultimately was smoothed over by Gov. John Baldacci ˆ a fervent supporter of efforts to keep the mill running ˆ the $25.2 million deal closed on May 28.
Within six days, the Lincoln mill, now called Lincoln Paper and Tissue, had an order in hand and was making product. Within weeks, the mill was fully operational. Today, 340 workers are back on the job, compared with the 500 who'd been employed in Lincoln when Eastern Pulp shut down in January. The mill was humming, and Lincoln's prospects were looking brighter. At a Sept. 18 employee-appreciation-day picnic, Wissman announced that, "against all odds," the mill made a profit in August. Two days later, First Paper received the Economic Development Project of the Year award from the Northeastern Economic Developers Association.
But that doesn't mean the company is home free. It sold its Amherst offices and turned the Brewer mill over to city officials in order to focus on operations in Lincoln. Van Scotter, who assumed the role of CEO, is charged with making sure the Lincoln mill defies the trend to failure that plagues restarted mills. He's got to balance performing basic maintenance against making strategic investments to improve efficiency; deal with the escalating costs of energy and fiber ˆ the hardwood chips and softwood sawdust used to make paper at Lincoln; and keep the mill's workforce inspired. "At the end of the day, things don't happen unless people take big risks," Van Scotter says. "This was a big risk, but it was a calculated one. We felt we knew what was there."
Risking a restart
Back in September 2000, Eastern Pulp and Paper filed for bankruptcy on debts exceeding $181 million, citing declining markets for printing and writing papers, increasing prices for energy and raw materials, and the cost of making required environmental improvements. At the time, Joseph Torres, Eastern's chairman, said there were no plans to lay workers off or shut down the mill; instead, the company hoped to restructure its debt and once again move to profitability or find a buyer.
According to Jack Cashman, commissioner of the state Department of Economic and Community Development and Baldacci's point man in the recent efforts to find a buyer for Eastern Pulp, those plans seemed reasonable. "Wissman worked with the previous owners to help turn the situation around," he says. "I saw his game plan for the previous owners ˆ it made all kinds of sense, and they didn't follow it."
None of the potential buyers for the company panned out, and Eastern's debts ˆ including nearly $2 million to Pittsfield-based Cianbro Corp. ˆ went unpaid. By last March, the mills' backers opted to stop spending money to heat the mills ˆ a move that could have caused an environmental nightmare. Without heat, the mills' pipes would freeze, with ensuing spills damaging the mill beyond the cost of reasonable repair. (The state Department of Environmental Protection estimates that environmental cleanup of the site would have cost $15 million to $20 million.)
In the hope that a buyer would be found, Baldacci drew $900,000 from his contingency budget and the state DEP to heat the mills. In the meantime, Wissman, Van Scotter and Fisher pondered making an offer for Eastern Pulp. "[Wissman's] work showed the Lincoln mill, as a stand-alone entity, was viable," Van Scotter explain.
According to Van Scotter, there were four reasons that made Lincoln worth the risk of a restart. Most crucial were the two niche products, for which the mill was a strategic producer. Second was the mill's ability to make pulp, the processed fiber that is rolled into paper and tissue. "It provides us with a relatively stable cost structure," Van Scotter says. Third was the mill's energy platform; Lincoln is able to generate about 40% of its own energy needs. Finally, Van Scotter says the workforce in the area is skilled and creative, with a strong work ethic; the workers, he says, were hungry to get the mill running again.
Still, Lincoln is operating in the midst of an industry that has seen better days. Robert Rice, a wood scientist at the University of Maine in Orono who follows the paper industry, says the entire North American paper industry has been through a rough time over the last five years due to increasing production costs, foreign imports and diminished markets, particularly for the magazine paper produced by most of Maine's larger paper mills. "Mills that were marginal couldn't compete," he says "When they shut down, their source of [wood fiber] dried up, their supplier base went to other places."
The question of fiber
For mills like Lincoln to succeed, Rice says, they have to have a niche market that's too small or too specialized for many other paper companies to bother with. Lincoln's niche in tissues is crucial. "If the fiber resource is there, the tissue markets should do quite well," he says. "It isn't a skyrocketing market, but it is coming on well. But they need to re-establish themselves in that marketplace."
Those were the two big questions for Lincoln: Could the mill get its suppliers and customers back? "A hundred and twenty percent of our customers returned," jokes Van Scotter. "There are a couple who haven't returned, but the largest before are the largest now, and we've gotten some new customers the prior owner couldn't get."
Wisconsin-based Hoffmaster, a division of Solo Cup, returned to Lincoln for tissue to make into the paper napkins and tablecloths sold in grocery stores and big-box retailers for holiday gatherings. And when it comes to those pesky business reply cards, the world's largest magazine publisher, Time Inc., which publishes Time, Sports Illustrated, Fortune, Money and dozens of other titles, had purchased stock from Eastern Pulp and Paper for at least the last 15 years.
Now, Guy Gleysteen, who runs TI Paperco, Time's paper purchasing division, says he'll purchase 20% of the company's total business reply card volume from Lincoln this year. "In the spring of 2004, there were limited suppliers of this stock. As demand for paper improved, the re-launch of Lincoln Paper and Tissue could not have come at a better time," he says. "Thanks to the long-standing relationship Time Inc. had with the mills when they were part of Eastern Pulp and Paper, we were quickly able to move orders into Lincoln once the new company was operational."
Van Scotter says there is room to move into other niche markets in the future with products such as drawing paper. But to make tissue, business reply cards or drawing paper, Lincoln needs fiber. (See "From trees to tissue," p. 47.) And that's proved to be a bigger challenge than finding customers: Maine's entire paper industry is facing a fiber shortage, Rice says. It's not for lack of wood on the stump; the state's inventory of harvestable wood actually is increasing. Instead, the shortage results from a lack of infrastructure to get the wood out of the forest and into the mills ˆ be they paper mills or saw mills ˆ for processing. And with a rebounding wood-products industry for building materials, a growing wood-composites industry and increased interest in waste wood for biomass generation in the face of rising energy costs, there's increasing competition for the fiber paper mills require.
No exit
Loggers, squeezed between increasing costs for equipment, fuel and insurance, appear to be in short supply these days. "They can't afford to haul anymore," Rice says. "We've lost our cheap fiber. Part of the problem is the changing landowner base of the major fiber suppliers. But if you're willing to pay the loggers, the fiber appears. There are plenty of people who can get wood, but can the mill pay a price that allows profitability?"
In fact, fiber availability and cost top Van Scotter's list of concerns. He says the mill is getting enough fiber, though he would like to have more suppliers.
But it's only one of many concerns. He says he spends a lot of time "keeping abreast of the infrastructure. There's a lot to a pulp and paper mill. We're continually looking at investment and reinvestment in the right spots. But we can't fix everything at once."
Then there's staffing. "Even though there aren't enough jobs in the area, finding people willing and capable of working in a manufacturing environment is challenging," he says. He's found that many of the mill's former employees had already moved on to other mills, other industries. "It's almost counterintuitive, but finding the right employees is as hard as finding the right customers, if not harder."
Van Scotter says he's also asking a lot more of his employees than was asked of them before. He's renegotiated the union contract, allowing for more flexibility in what each worker can and cannot do. "If something needs to be done, anybody ought to be able to do it as long as it's safe and they have the skills," he says. "I give credit [to the workers] ˆ they bought into it, the union's been cooperative and we've gotten the right results to make this a success."
Cashman says he's spent a lot of nights worrying about the Lincoln mill and its jobs. "If you look at the economy of northern, western and down east Maine," he says, "they are natural resource based, and they've been taken for granted for some time, particularly the pulp and paper industry. Maine is not seen as a place to invest money. But if the economies of those areas are going to come back, we can't sacrifice [opportunities] that produce six jobs outside the mill for every job in the mill. Penobscot County would not be able to stand losing that many jobs."
Then, for Van Scotter, there's the challenge of the mill itself. "This is an old mill, and things break," he says. "Before we started up, we worried, 'What if certain parts don't ever operate well again?'" But the mill does operate, and both Van Scotter and Wissman say they owe thanks to Baldacci for that. The duo plans to begin reinvesting in the mill soon, within the first 12 months of operation, and to begin making significant strategic investments within the first two years.
And while neither Van Scotter nor Wissman will say just what those strategic investments might be, Van Scotter says, "While I'm not announcing it, we tell people we would like to build a new paper machine. We're interested in a variety of scenarios that would allow us to make more pulp and put it into tissue. The question is, how do we get it done? Realistically, for this to be viable over the long haul, there needs to be a plan to further develop the business."
It sounds like Van Scotter and Wissman expect to be around to do that planning. "I don't see an exit," Wissman says. "I'll be happy to own this when I retire. This mill is not an ideal fit for just any buyer ˆ I may have to train my daughters in the paper industry."
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