Latest details on the sale of the mill

More details have been released about the proposed sale of Terrace Bay Pulp to the Aditya Birla Group.  Here is the latest:

• Aditya Birla Management Corporation Private Ltd. has formed a new company called AV Terrace Bay that will own and operate the Terrace Bay mill
• Terrace Bay Pulp has asked for an extension to its creditor protection period until October 31, 2012 in order to complete the sale and transfer to AV Terrace Bay
• 13 non-binding letters of intent received for the mill by the deadline of Feb. 15, 2012
• 8 of the parties attended mill tours and management presentations
• 8 binding offers were received by the March 16th bid deadline
• Of the 8 binding offers, 2 were to restart the mill as a going concern. 6 were from liquidation or decommissioning firms
• 1 of the 2 going concern bids was in the form of a non-binding letter of intent and was subject to significant future due diligence and conditions
• The Monitor (Ernst & Young), Terrace Bay Pulp, and the province of Ontario reviewed the bids and determined the offer from AV Terrace Bay was the superior offer, and the best opportunity to secure a long-term future for the mill

Purchase Price of the mill

AV Terrace Bay’s purchase price for the mill is $2 million plus the amount of the assumed liabilities.

The assumed liabilities includes the approximately $24.2 million (plus accrued interest and costs) the mill owes the province of Ontario from a loan granted in 2010 allowing the mill to emerge from its first period of creditor protection.

As a condition of the purchase agreement, the province of Ontario will forgive the provincial debt obligations of the mill.

The total cash and cash equivalent value of the transaction is approximately $27 million.

Who signed the Purchase Agreement?

The purchase agreement is signed by Frank Dottori, Chairman of AV Terrace Bay Inc. and Peter R. Forestell, Q.C., Secretary of AV Terrace Bay Inc. for the purchaser, and by Wolfgang Gericke, Director of Terrace Bay Pulp Inc. as the seller.

Frank Dottori is the current Chair of CRIBE – the Centre for Research & Innovation in the Bio-Economy.  He founded Tembec Inc. in 1972 and was Tembec’s President and CEO from 1979 until he retired in 2006.

Conditions on the sale

In order to conclude the purchase agreement, AV Terrace Bay wants to enter into a new 5 year collective agreement with the unions at the mill by July 24.  AV Terrace Bay will assume all the unionized employee related liabilities including wages, benefits, credit for years of service, pensions, and other employment-related amounts.

AV Terrace Bay will be required by the purchase agreement to offer employment to all the non-unionized employees on terms that are consistent with those currently in place between Terrace Bay Pulp and the employees.

Also, AV Terrace Bay will establish new benefits plans for both the unionized and non-unionized employees that are substantially similar to the benefits the mill already offered.

If AV Terrace Bay needs to terminate the employment of any employee, unionized or non, the employee will be credited with their past years of service at the mill.

The purchase agreement requires the sales transaction is closed before the end of July.

What about the golf course?

Terrace Bay Pulp owns several non-mill related assets including a 9 hole golf course, an airstrip, vacant lakefront lands, and lands to the south and west of the mill site.

AV Terrace Bay is not purchasing these assets. They will be marketed and sold and the profits will be distributed to Terrace Bay Pulp’s creditors.

Aditya Birla

Aditya Birla has been in existence since 1857.  The company owns and operates several lines of business around the world.  Their revenue at the end of last year was approximately $25 billion US and they employ an estimated 133,000 employees around the world.

Of interest is the company’s viscose staple fibre business.  Aditya Birla uses viscose staple fibre in their production of textiles and other non-woven applications.  They operate 3 mills in India (and a fourth is being constructed), and a mill in Thailand, Indonesia, and China, with another plant being constructed in Turkey.

Aditya Birla uses dissolving pulp to produce the viscose staple fibre.  Right now, they operate 4 dissolving pulp facilities – 2 in New Brunswick (Nackawic (“AV Nackawic“) and Atholville (“AV Cell“) mills), and one in India, and Sweden.

The company plans to spend up to $250 million to convert the Terrace Bay Pulp mill to a dissolving pulp mill as they did with their facilities in New Brunswick.  Because the dissolving pulp will be sold to Aditya Birla’s own facilities, the market for Terrace Bay’s pulp is predicted to be much more stable and less cyclical than the NBSK pulp that the mill historically produced.

AV Terrace Bay wants to restart the mill in October 2012 to continue producing NBSK pulp while the company spends the next 2-3 years to convert the facility to a dissolving pulp mill.

Late bids for the mill

There were 4 late bidders who expressed interest in the mill.  These bidders were informed they could conduct due diligence, but that their interest would only be entertained if the sales process with AV Terrace Bay is not complete.

3 of the late bidders expressed interest in operating the mill as a pulp production facility. 1 wanted to convert the mill to a biomass facility.

2 of the late bidders submitted deposits.

1 of the bidders who submitted a deposit was  Tangshan Sanyou Xingda Chemical Fibre Co. Ltd. of China. Unlike the other 3 late bidders, Tangshan’s offer was not subject to additional due diligence or other conditions.

Ernst & Young, and Terrace Bay Pulp consulted with the province of Ontario about the late bidders.  It was decided that because the bids were late, and the discussions with AV Terrace Bay were already at an advanced stage and supported by certain key stakeholders, and that the remaining cash resources of the mill were at risk of being depleted, that it was not worth the risk of delaying the potential for closing a sales transaction.

Tangshan, through Recovery Partners Ltd., sent a non-binding letter of intent on July 5, hours before the Purchase Agreement with AV Terrace Bay was executed. The offer from Tangshan was conditional on several items, including the need to negotiate with the mill’s stakeholders, receive final approval from China’s regulatory authorities, conduct environmental and employee related due diligence, negotiate an asset purchase agreement, and other regulatory approvals and licenses.

Despite being told their late bid would not be considered, on July 10, Recovery Partners, on behalf of Tangshan, submitted a second non-binding letter of intent, requesting that the sales process be opened to a formal auction.  In this non-binding letter of intent, Tangshan increased their purchase price to $35 million and said they would use the same agreement AV Terrace Bay had negotiated and would close on the same conditions.

Two days later, Tangshan sent a binding offer.  At that point, Ernst & Young and their counsel, and the province of Ontario’s counsel met with Tangshan and its counsel and Recovery Partners.  They were informed that their bid was not submitted with the court approved sales process and their bid could not be considered, but it would be reported to the court.