Abitibi-Cdrico to Reshape Chandler into One-Machine JV Newsprint Mill
Abitibi-Consolidated has begun discussions with Groupe Cdrico, the major asset of Gestion Gilles Brub, to form a stand-alone joint-venture that would acquire the company's Chandler, QC, newsprint mill as a one-machine operation.
The company also confirmed its intention to permanently shut down the remaining No. 2 newsprint machine at Chandler, idled indefinitely since January 11, effectively removing about 110,000 m.t./yr of high-cost newsprint capacity from the market. Some 200 jobs will be affected by the closure.
Abitibi-Consolidated will take a one-time cost for the write-down of the machine and related severance costs of approximately $40 million, to be booked at fiscal year end 1998.
In the joint-venture project being discussed, Abitibi-Consolidated would contribute the one-machine Chandler operation in exchange for a 40% minority equity position in the new joint-venture and Groupe Cdrico would hold the remaining 60% majority position through the contribution of its six existing sawmills in the Gasp region of Quebec.
The proposed joint-venture company would immediately move to lower costs and obtain synergies through the optimization of the combined fiber base as well as the construction of a $70 million thermomechanical pulping (TMP) facility and a $30 million sawmill complex.
Financing of the capital improvements would be borne solely by the joint-venture and would have no impact on the debt position of Abitibi-Consolidated.
"We have given considerable attention to the Chandler issue. It is not an easy decision to shut down a machine, so we are moving with careful consideration of what is in the best interests of all our stakeholders," said John Weaver, Abitibi's executive VP and CEO designate.
"The joint-venture structure we are discussing is the best means to ensure that Abitibi-Consolidated meets its objective of holding only a portfolio of low cost assets while ensuring a long-term future for the Chandler mill. And we believe that it is the best business decision for Abitibi-Consolidated and for the Gasp region. The transaction will be immediately accretive to our shareholders by removing the need for focused downtime at Chandler, through the restructuring efforts related to the one-machine operation and with the addition of Cdrico's profitable sawmill operations.
"The planned capital expenditures would secure Chandler a cornerstone cost position and would be completely off our balance sheet due to our minority position. I can't think of a better person to lead Chandler into a new phase than Gilles Brub. He is a successful local entrepreneur, completely committed to a joint-venture and he has our full support," Weaver emphazized.
As majority owner, Brub would operate the new joint-venture company with support from Abitibi-Consolidated's sales and marketing network. The company would also provide project management expertise for the construction of the TMP plant. The joint-venture project is subject to the successful negotiation of many conditions, including definitive agreements, regulatory consents and approval by Abitibi-Consolidated's board of directors.
Groupe Cdrico is comprised of six sawmills and one engineered wood products facility, with annual sales of $80 million. The one-machine Chandler mill will have an annual newsprint capacity of about 150,000 m.t./yr.
Abitibi-Consolidated is the world's largest manufacturer and global marketer of newsprint and a leader in uncoated groundwood papers. Operating 19 mills throughout North America and the UK and selling product into more than 50 countries, the company's "vision" is to be the "world's preferred marketer and manufacturer of papers for communication."