It is a sad day in Missoula when a local employer lays off 417 jobs. It is even sadder that it was management who caused, through bad decisions, the operation to close down. But, nearly everyone in the pulp and paper industry knew that it was only a matter of time before Smurfit-Stone shuttered the Frenchtown mill.
Why is that? Nearly a year ago Smurfit-Stone Container filed for Chapter 11 Bankruptcy. At the time, chairman and CEO Patrick J. Moore said, “Our financial performance has not reflected the full potential of our earnings power due to higher cost operations and burdensome debt levels dating back to the original formation of the company.”
Did you notice that bit about burdensome debt levels? At one stage, Smurfit-Stone Container was leveraged to the extent of 70 percent of capital. Hardly wise management, but instead this was celebrated back in 1989 (the go-go 80’s) as an ambitious company batting above its average on the way towards becoming a global behemoth.
In March 1989 Stone paid $2.2 billion in cash and securities for Consolidated-Bathurst Inc. (CB), Canada’s fifth largest pulp-and-paper company. The purchase made Stone Container the world’s second largest producer of pulp, paper, and paperboard; a major player in newsprint; and gave Stone Container a foothold in the European market through CB’s Europa Carton subsidiary and U.K. plants. Investors even back then worried about the $3 billion debt, but management thought it was easy enought to sell-off some of the non-core assets. The deal, though, was financed by banks and eventually they called in their obligations. The debt nearly caused Stone Container to collapse in 1993 when the debt had risen to nearly $5 billion.
Still the company continued on its spending binge, all with the aim of becoming what they are now – North America’s largest manufacturer of paperboard packaging. In 2000, it purchased St. Laurent Paperboard Inc. of Montreal for about $1 billion in cash and stock. In 2002, it paid $375 million for the MeadWestvaco Corporation’s Stevenson, Ala., mill and the seven plants and 82,000 timberland acres that supply it. It was still splurging as of 2008.
Ever since then, through mergers, reorganizations, fire sales of assets, broad redefinitions of strategy and assorted restructuring programs the debt load has constantly dragged the company down. As of of Sept. 30, 2008, the company was still $5.6 billion in debt with only $7.5 billion in assets.
What about the Missoula mill? Well in a gentle farewell to workers, Smurfit president Steve Klinger said on Monday that the Frenchtown mill was a high-cost facility that did not provide adequate returns over the long term for the company.
Really? Because in 2008 a strategic review that the company conducted with outside experts determined that its mill system was very cost-competitive, with about two-thirds of its plants in the top half of the cost profile. This was after they’d already closed a 180,000-ton linerboard machine in Montana. So, either they already knew that Frenchtown was one of the dogs, or they just couldn’t be bothered to fix it.
I dunno. Maybe the workers could see what was coming and were just hoping things would work out fine. But, I can’t help but think that the company hasn’t been completely honest with the crew. I guess it is hard for management to admit they’ve been screwing up for over 20 years. Patrick Moore and the bosses in St. Louis, however, will all keep their jobs. And, to put the icing on the cake, Smurfit-Stone may pay out up to $47 million in bonuses to executives and other employees in 2009. I don’t think any of the folks in Frenchtown will be getting them.