Thursday, November 13, 2008

Revisiting the ESOP at Evergreen!

Four years ago I wrote the following My Word in the Times Standard. I took all sorts of flack at the mill, as my fellow employees were put off by my presumption that they too wanted to pursue an Employee ownership or ESOP. I put the idea out there because the mill was in the balance of closing permanently. Just like now.

I still feel we made a mistake by not at least investigating our options more closely then. Evergreen went public that they were profiting millions with very little capital expenditures the first year they operated the mill. Of course they have spent millions in upgrades since, but by all accounts had 20 million owed to them by Lee Kwak when they closed the plant.

If we had more domestic partnerships, I believe we would not have run this financial course.

Most of my observations then are very relevant today. This is not a "I told you so" but a lesson to not be so quick to "Shoot the Messenger."

MY WORD-Richard Marks

Employee Ownership can save Pulp Mill

As a long time forest product worker at Stockton Pacific Enterprises pulp mill in Samoa, I am deeply concerned that my community is missing a once in a lifetime opportunity today in the management shakeup and potential sale of the mill.

Many people do not know that the Stockton Pacific Enterprises Pulp Mill is the only certified totally chlorine free (TCF) pulp mill operating in North America and the only operating pulp mill in California. Our raw material is wood chips, our product is virgin pulp and our market is worldwide.

Over 150 good jobs with benefits that add wealth to the community are directly dependent on the mill, and many more local Humboldt businesses and jobs are indirectly affected by the viability of the mill.

The Stockton Pacific Enterprises Pulp Mill is undergoing another turnover of owners and management. Already workers have given up 15 percent of our monthly wages (around $100,000 per month) in the hope that the mill will not be closed.

Several years ago we reduced our workforce by over 50 employees to cut costs to preserve the company. We have given and will give more to make this mill viable.

We owe the Humboldt Bay Municipal Water District (HBMWD) $600,000 in back payments for water, and if we close down we will never pay; the mill represents 45% of the monthly revenue of the HBMWD which would be borne by increased rates to residents if we close. PPM Finance (an American bank in Chicago owned by a British company) has a 17.5% interest loan which management cannot pay and the threat of foreclosure is very real.

We workers want to buy out our mill and operate it successfully. We can do this successfully through a mechanism called an Employee Stock Ownership Plan (ESOP). We need time to develop a feasibility study and we need community support. We need our local legislators to sponsor legislation giving chlorine free pulp and paper products preferential status in state purchasing to assure a steady local market for our pulp. We need the Headwaters Funds and our economic development leaders to get behind and ESOP feasibility study and local ownership of the mill.

Think what a better situation we could have today in Humboldt County if our community had successfully supported an ESOP buyout of Pacific Lumber when Hurwitz and Maxxam rode into town in the 1980’s. We don’t want another round of foreign management: with a locally managed ESOP, it can be different this time.

An ESOP could provide for at least a 35% ownership, with two employee members on the board of directors; there would be profit sharing; democratic decision making; wages and benefits would be competitive with the industry; worker input on production; sound environmental stewardship and attention to worker safety; job retention; lobbying for greater production and sales of chlorine-free paper products.

We could work toward the conversion or development of the plant to include the manufacture of chlorine free finished paper products to create even more living wage jobs for the community.

To make all this happen, we need a working partnership with the HBMWD, an agreement which helps keep the district solvent without putting extra costs on local customers.

We need better communications between workers here at the plant and our community. We have a long term work investment here. The average worker has been at the plant over 20 years. We want to make this plant sustainable in good times and bad. I believe that an ESOP plan is the best way for direct worker involvement and investment in the future economic viability of this industry. We have a number of excellent models to work from, including the recent ESOP implemented by the Association of Western Pulp and Paper Workers (AWPPW) Blue Heron Paper in Oregon, and the very successful union ESOP at Blue Ridge Paper in North Carolina. We have the resources, the people and the desire to succeed.

But the Stockton Pacific Enterprises Pulp Mill workers and local 49 cannot do this alone. We are asking the community for involvement and input. What kind of economic future do we have here in Humboldt County?

One of the alternatives is foreign management, like the potential Chinese owners or the British bank investors or Pacific Lumber’s Maxxam. Another alternative, one I prefer, is local ownership with real democratic worker participation in an ESOP.

We can choose the future direction and economic development of our community, and we need to act now to make it happen or we will lose this opportunity forever. The workers of Local 49 ask for your support and input.

20 comments:

Anonymous said...

An ESOP still needs funding and to run a pulp your talking about a lot of money. And even if you are an ESOP someone has to manage the company workers do not, there still has to be a boss.

Anonymous said...

and can you Work for others

Anonymous said...

and can you Work for others

Anonymous said...

Richard,

I know nothing about the real circumstances at Evergreen. Its not at all clear what the owner's objectives and plans are. With all the conflicting reports, many things are possible.

Sounds like you already understand the challenges of completing a deal like this. Best of Luck

Here are some websites I found with sources of expertise:

http://www.nceo.org/

http://www.americancapital.com/resources/buyouts/esops/esop_financing.html

Anonymous said...

Richard,can you find out who else they are trying to sell the mill to?

Anonymous said...

I don't think its clear they are selling to anyone.

One "good" scenario is that Evergreen will revert back to Lee and Man when Worthy Pick fails to makes a future purchase payment. That would be consistent with the statements that the "sale" was just a way for Lee and Man to raise cash. Which it did through a sale of shares.

I sure don't know what's going on but I do know that anyone who does know isn't going to publicize it.

samoasoftball said...

NAN: And I have still can find nobody who can tell me the principal share holders for Worthy Pick. You may be right.

Anonymous said...

Richard, you may not be able to find the principle share holders, but you sure can find a supreme burrito!

Anonymous said...

Hi Richard:

Read your ESOP comments. A deal might be doable if you got the backing of the community, not just the mill workers - something that is by no means certain.

Lee & Man would love to sell the mill. They have EPA issues (remediation of the site would be over $25 million) and a sale to an ESOP might be one way to hand off the problems. They would probably sell the mill for a nominal sum (payable far in the future) and even be willing to put some cash in.

The announced sale of the mill sounds strange. My guess is that a real purchase offer would be very interesting to Lee & Man.

There are several agents who would love to sell the pulp and might be willing to lend some capital to get the contract.

A community owned mill would be far more viable with the regulators, reducing one of the major problems facing Evergreen.

An investor group might put in some money if the major problems are addressed; with the reduction in number of operating mills, competition has dropped (though so has demand for pulp).

Interesting idea; you should pursue it.

Anonymous said...

Richard,

I don't know if, say six months from now, there will still be a cohesive and interested workforce in the area that can claim its particular expertise would be a significant factor to the competitiveness of a reopened plant.

Only that, and their willingness to take some compensation from future profits, would make an employee buyin plan even thinkable.

ESOP purchase agreements are ususally mediated by management, who should have the trust of both groups. Unless there is a new management group, the current senior managers have to be retained just like the other employees.

Typically management is also part of the deal because they are the people that financeers look to for security. They also have a lot of the knowledge needed to create the business plans needed for decisionmaking.

Who is the current most senior manager known to the Evergreen workforce? Thats the person to start with anyway. Is David Tsang still at the plant?

But I'd expect anyone now actually at the plant isn't senior enough to begin a serious discussion.

You know, successful business deals are all about developing personal relationships of trust, respect and belief that the other party both knows what needs doing and has the ability to do it.

Anonymous said...

NON:

Unfortunately David Tsang isn't the man.

It is a fact of life that little attorneys who have had their law licenses suspended for inappropriate behavior are not typically trusted by the financial community. Add his admitted emotional problems (in a sworn statement to the BC Law Association) and the number of lawsuits that he has been/is currently involved in, and he seems pretty unsavory to me.

Just as important is the conflict of interest between his historical representation of Lee & Man (he went to school with Raymond Lee) and his responsibilities to the ESOP.

I think that you need to look farther afield than Tsang.

Anonymous said...

Burn it down and return the bay to its natural state.

samoasoftball said...

Steve: I did pursue it. 4 years ago. You were the CEO at the time. I was almost lynched by my fellow workers at the time for bringing it up. It is most likely too late for the workers to be able to pull off an ESOP.

Is this really Steve, or a Evergreen worker messing with me?

Anonymous said...

So Richard, what's your point in now bringing this up if you aren't interesting in pursuing a ESOP?

If you have new ideas, reveal them or else it does start to look like you're only trying to take credit for being corect in something that no one can now know was even posssible. Forget the past, what are your ideas for the future?

Anonymous said...

In 2006, Mother's Cake & Cookie Co. was uprooted from its plant on 81st Avenue in Oakland and relocated. About 230 employees lost their jobs.

According to industry lore, the company was founded in 1914 by a newspaper vendor, N.M. Wheatley, as a one-person shop. It expanded and moved to the 81st Avenue location in 1949.

Mother's later had a series of corporate owners: a Belgian company, Artal B.V., bought it in 1991; it was owned by Specialty Foods Corp. of Illinois in the late 1990s; in 2000, Specialty sold Mother's and Archway Cookies to Parmalat, which in turn sold the combined business to Catterton for an undisclosed sum.

Catterton said in a statement it "took a number of actions to remedy" the company's financial crisis, "but these actions were not sufficient to overcome the losses and return Mother's Cake & Cookie Co. and Archway Cookies LLC to profitability."

One of those efforts was to seek financing. "But, as you know, the credit environment is very difficult now," said Meaghan Repko, a spokeswoman for the owners, in New York.

The owners did not comply with the federal law that requires a 60-day notification of any layoffs and said that was due to "unforeseeable business circumstances." A business uses that language to seek exemption from the act's 60-day notice requirement.

"Having reviewed the options available, the company believes that this (bankruptcy filing) was the only course of action," said Jeff Granger of Focus Management Group in Tampa, Fla., who is expected to be appointed chief restructuring officer of the company.

Sixty people are out of work at the Battle Creek office, and Battle Creek City Attorney Eileen Wicklund said Wednesday that she had advised workers to explore a lawsuit against the company.

"Any loss of employment is a blow for any community," she said.

The company had many drivers, including 60 in Northern California, represented by the Teamsters Union. One of them, Frank Makely, 59, of Fresno, an employee for the past nine years, called the short-notice dismissal "unimaginable."

"The owners came in to get rid of us, to chew us up and spit us out," he said, alleging their intent was to gain a profit by selling assets and neglecting service of trucks and other expenses.

"This is part of the economic crunch, with the CEOs taking the money out and not putting more money into the company," said Makely. "I'm too old to get a driving job. Who would hire me?"

Anonymous said...

Hi Richard:

Yes it is me. I follow the mill because of the lawsuit that I am involved with Evergreen. We are scheduled for trial on 12/1/08; I am looking forward to getting my name cleared and winning a judgment (though how much I will be able to collect from Evergreen is another matter).

I remember our discussions about an ESOP; I liked the idea then and think that it is a better idea now. The key question is: "Are the workers and community willing to back the idea?"

If there is community support, an ESOP is viable (though difficult); without the community, the idea is DOA.

It is likely that the mill will not reopen under Evergreen. I believe that they are worried about the EPA, the WARN Act, and the liabilities to the union. By hanging the restart carrot 3-6 months out, they defer any adverse action. The public announcements in Asia and their new mill investments are a pretty good indicator of their intentions.

Nobody will run the mill in today's environment unless the workers take the lead; there is just too much capacity on the market.

This is the time for a leader to step up.

Give me a call.

Anonymous said...

Last time I checked a map Fresno was not located in northern California.

Anonymous said...

Looks like the contraction isn't over.

Today Boise, Inc announced permanent halt of pulp production and reduction of paper production at its St. Helens, Oregon plant. 300 jobs will be lost at the mill.

St. Helens is about 30 miles from Portland, the 30th largest US city.

The company's news release cited factors of better matching pulp and paper production to market demand, improving operating margins by discontinuing production of the least profitable paper, reducing exposure to energy and fiber price volatility, and lowering dependence on high-cost residual wood chips.

Only this February, Boise Inc purchased the St. Helens mill from privately held Boise Cascade as part of its paper and transportation businesses.

In September, Boise Cascade had closed a veneer mill in St. Helens, eliminating 30 jobs.

samoasoftball said...

NAN: Wpw, thanks for the update. That will terrible for that community. They are pretty close knit there. Wow. Bad times are here.

Anonymous said...

Though I have no personal knowledge of St. Helens, census demographic data shows Columbia county is a pretty affluent place. Household median income is about the same as California and 15% above the Oregon median while poverty is 16% less.

The average commuting time is 30 minutes so I expect having a job in Portland is common for people in St. Helens. Much more common than a Humbolter commuting to Santa Rosa.