Smell of Money Will Linger: IP Says Pine Bluff Mill Will Be Sold, Not Shuttered

by John Henry  on Monday, Aug. 29, 2005 12:00 am  

(Editor's Note: This is the latest in a series of business history feature stories. Suggestions for future "Fifth Monday" articles are welcome. Please contact Gwen Moritz at (501) 372-1443 or by e-mail at Click here for more "Fifth Monday" features.)

The recent restructuring plan announced by International Paper Co. was a shock to the 1,200 employees at its huge Pine Bluff paper mill, which it intends to sell, with waves rippling throughout Jefferson County.

"Any time there's a change, there's some risk," said Jim Crider, president and CEO of the Economic Development Alliance of Jefferson County.

For nearly half a century, the mill has been a jewel — albeit an odorous one — in southeast Arkansas, paying some of the best wages in the region and contributing to civic and charitable causes. After meetings with plant employees following the July 19 announcement, mill manager Calvin Staudt met last week with local civic leaders to allay any fears that the mill might be shuttered and to assure them that IP is serious about finding a buyer.

The mill actually is doing quite well now after some recent turbulent years when there was speculation it might be closed.

Staudt sees it as a profitable prize that some other papermaker should quickly snap up, and he expects to be showing it within a few weeks.

IP's three-part plan to improve returns, strengthen its balance sheet and return cash to shareowners includes, the announcement said, "narrowing the company's portfolio to two key platform businesses; improving shareowner re-turns through mill realignments in those businesses and additional cost improvements; and exploring options to sell or spin off other businesses."

Those two key platform businesses are uncoated papers and industrial and consumer packaging, which make up more than 70 percent of the company's sales. The Pine Bluff Mill, which makes coated paper used in beverage cartons, isn't part of either of those business lines.

IP immediately started going down the punch list: It has sold its 50.5 percent stake in Carter Holt Harvey Ltd., a New Zealand company, to Rank Group Investments Ltd., also of New Zealand, for about $1.2 billion. IP has also finalized its plan to move its corporate headquarters from Stamford, Conn., to Memphis, where it already had its core operations center and some 3,500 employees. (A $15 million tax incentive helped ice the move.)

IP said it is in the "process of evaluating its options," but wants to also sell or spin off

• its coated and supercalendered papers business, including a mill in Parana, Brazil. (Supercalender is a process that enhances the smoothness and gloss of high-quality printing papers.)

• its entire beverage packaging business, which includes the Pine Bluff Mill.

• its kraft papers business, including the Roanoke Rapids, N.C., mill.

• its Arizona Chemical facilities, which actually have been on the market for several years.

• part or all of its 6.8 million acres of U.S. forestland, which includes almost 700,000 acres in Arkansas.

• the wood products business, which includes the sawmill at Leola that employs about 200.

"The businesses being evaluated for potential sale or spin off are good businesses that may be better positioned with different ownership," IP Chairman and CEO John Faraci said in a press release.

The businesses in limbo make up about 30 percent of IP's 2004 sales of $26 billion. Depending upon whether the divestments are sold or spun off, the company estimates after-tax proceeds could be $8 billion-$10 billion.

Staudt said Credit Suisse Group, which is handling the possible sale of the Pine Bluff Mill, is working with IP and the mill in putting together a confidential informational memorandum that it expects to complete by Sept. 9.

"By October, we should start to see prospective buyers touring the mill," Staudt said.

Credit Suisse will then ask for bids, he said. Eventually it will narrow the field down to the top two or three buyers and pursue them for the sale.

"The timetable for the sale is by the end of the first quarter of 2006, if things go very fast," Staudt said, "but more likely it will be in the second quarter.

"The company said it would re-evaluate the mill if there's no sale by the end of 2006." Staudt said he thinks the mill could bring $800 million-$1 billion.

Everyone employed at the mill, including Staudt, goes with the mill in any deal. He said he didn't have preference as to who he'd like to see buy the mill.

Mill History

The announcement that International Paper Co. planned to build a paper mill on 5,000 acres along the Arkansas River outside of Pine Bluff was enough to prompt the Pine Bluff Commercial to put out an "extra" edition of the newspaper on April 10, 1956.

And while some over the years have griped about the odor the plant produces, especially on days when there's a temperature inversion, most locals proudly say, "It smells like money."

The first announcement said the mill would cost $57 million. By the time production began on June 16, 1958, however, the actual price tag was more than $75 million. To replace the same mill today probably would cost around $1.6 billion, Staudt said.

Over the years, the mill has undergone numerous upgrades and changes in what it produces, all of which make it an attractive mill to buy.

At its startup, it had two machines: one for newsprint and the other for milk carton stock. A third machine was added in 1960 to make lightweight paper for telephone directories.

In 1961 the mill was the first to produce polyethylene-coated milk and juice carton stock, which replaced the old wax-coated cartons.

During the '70s, the mill went through some adjustments caused by fluctuating market conditions.

In 1974 the No. 3 machine was converted from lightweight grades to recycled corrugated paper. That product was dropped in 1976 and the mill returned to making newsprint.

By 1984, however, the newsprint market declined and the Pine Bluff Mill shut down its newsprint machine for good. That meant two of its three machines were idle and only the machine making the milk and juice carton stock was running.

IP launched a $250 million improvement project that year to convert the No. 1 machine to produce coated publication-grade paper — the paper used for glossy magazines, catalogs and newspaper advertising inserts. It started up in 1986.

The No. 2 machine also got an upgrade and today produces one-third of the world's demand for paperboard for liquid packaging. The mill manufactures 460,000 tons of packaging board for the cartons each year. It is the exclusive supplier of gable-top cartons to Tropicana.

In addition to the two paper machines, the mill also has its own power and pulp operations, four extruders, an off-machine coater, and two supercalenders. It produces approximately 80 percent of its own energy by burning natural gas, wood bark, waste paper and other scrap materials. More than 95 percent of the chemicals used to make pulp are reclaimed and reused.

Turnaround Artist

A year or so ago, word on the street in Pine Bluff was that the mill could be shut down because of repeated problems and poor-quality products. Those who remember the mill closing at Camden in 1997 know that IP is not afraid to close a mill that's not performing as it should.

But that has changed now, and much of the credit goes to Staudt, the man IP brought in last year to straighten out the mill.

"It was clear we had some work to do," is how Staudt put it.

With a goal of keeping the mill running, Staudt quickly

• negotiated a three-year labor agreement that was ratified on the first vote — a first in the mill's history.

• improved the mill's total incident rate from 1.91 to 0.83 — the best in its history. It's now recognized at the safest mill in the Southeast, with more than 1 million hours worked without a recordable injury.

• reduced quality claims by 50 percent — the mill's best performance in more than five years.

• set production records on the coated paper machine, the bleached-board machine and pulp production.

To top it off, the mill became profitable this year, Staudt said, even in the face of higher energy prices, higher prices for wood and higher prices for polyethylene.

"Now the goal is to keep it up," he said.

IP originally committed $21 million a year in capital investments at the mill through 2010. Although that will likely change, Staudt said he still has $3.5 million committed to capital projects through the remainder of this year.

Over the lifespan of the mill, more than $1.5 billion has been spent on capital improvements — a figure that doesn't include the initial construction costs.

The mill is running at capacity, Staudt said, and selling everything it makes. He said he's even had to tell some who wanted to increase orders that he couldn't produce any more. Industry analysts foresee a growing demand for the coated-paper business.

"IP has been involved in just about everything that's positive in Jefferson County," said County Judge Jack Jones. "Maybe the next owner will be just as involved."

Jim Caldwell, who heads the United Way of Jefferson County, said, "The mill and its workers have been a very major player in United Way and also in education and civic affairs in general."

Another Water Idea

International Paper Co.'s Pine Bluff Mill is one of the area's biggest water consumers, taking in about 28 million gallons a day.

The mill's manager, Calvin Staudt, has been active in working with the county and city officials to establish a county water board to come up with a long-term solution that would relieve the rapid depletion of the alluvial and Sparta aquifers caused by the mill and by farm irrigation.

One idea is to drill a series of wells next to the Arkansas River at an angle so that water coming out of the aquifers would be replaced with river water. The mill and the county have contributed the $180,000 needed for a test well, said Jefferson County Judge Jack Jones, but the project is awaiting permits from the U.S. Army Corps of Engineers.



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