ABH (TSX, NYSE)
US$- Reduces Paper Production Capacity by Approximately 1 Million Metric
- Increases Synergy Target to $375 Million
- Targets $500 Million from Asset Sales
- Suspends Dividend
- Requests Reopening of Canadian Union Contracts
- Initiates Phase 2 Comprehensive ReviewMONTREAL, Nov. 29 /CNW Telbec/ - Following the initial phase of a
comprehensive strategic review, the Board of Directors of AbitibiBowater Inc.
has reviewed Management's recommendations and approved the following actions.
The Company will reduce its newsprint and commercial printing papers
production capacity by approximately 1 million metric tons per year during the
first quarter of 2008. The reductions include the permanent closure of the
Belgo (Shawinigan, Québec) and Dalhousie (New Brunswick) mills, as well as the
indefinite idling of the Donnacona (Québec) and Mackenzie (British Columbia)
paper mills. The Company will also indefinitely idle two Mackenzie sawmills
directly supporting the Mackenzie paper operation. These facilities are not
generating positive cash flows and are not expected to do so in the
foreseeable future. They represent approximately 600,000 metric tons of
newsprint, 400,000 metric tons of commercial printing papers, and 500 million
board feet of lumber capacities. In spite of these capacity reductions,
AbitibiBowater expects to continue growing its international newsprint sales
in line with offshore market expansions.
Additionally, the Company will permanently close the previously idled
Fort William (Thunder Bay, Ontario) and Lufkin (Texas) paper mills, as well as
the #3 Paper Machine at the Gatineau (Québec) facility. The previously idled
operations had a total capacity of approximately 650,000 metric tons.
The Company also announced that it has raised its targeted synergies
stemming from the merger to $375 million. "We are confident that we can
achieve the original $250-million run rate by the end of the first quarter of
2009, and realize an additional $125 million within our originally announced
two-year time frame, which extends through the end of 2009," said Executive
Chairman John W. Weaver.
As part of the action plan unveiled today, AbitibiBowater is reaching out
to both unionized and salaried employees to contribute to cost-reduction
initiatives. The Company is asking its Canadian union partners to reopen
current labor agreements and explore ways to reduce overall labor costs and
provide enhanced flexibility in the workplace. The salaried workforce will be
impacted by on-going benefits harmonization.
With regard to the capacity reductions, the Company evaluated a range of
options. "These were difficult decisions that were made after careful
deliberation and represent the best course of action given the current
economic conditions and significant challenge that lies before us. We are
mindful of the impact these decisions will have on the employees and
communities affected, and will be working with them to help mitigate the
effects," said President and Chief Executive Officer David J. Paterson. "We
are confident, however, that, as a result of the actions, AbitibiBowater will
become a stronger, more globally competitive organization. I believe the
initiatives unveiled today underscore our determination to adapt to today's
rapidly changing market realities."
Overall, the Company is targeting $500 million from asset sales,
including non-core facilities, U.S. timberlands and the newsprint mill at
Snowflake (Arizona), which must be divested under the terms of the agreement
reached with the United States Department of Justice for approval of the
Abitibi-Consolidated/Bowater combination. Proceeds will be used to support the
three-year, $1-billion debt-reduction target.
Given the Company's focus on debt reduction, after careful deliberation,
the Board of Directors has decided to suspend the dividend to shareholders.
The Company will revisit this decision once clear progress has been made to
achieve its financial targets.
The Company estimates it will incur cash closure costs of approximately
$100 million related to severance and other closure charges as a result of
these actions. Approximately $30 million of these closure costs will not
impact AbitibiBowater earnings and will be recorded as liabilities in the
purchase price allocation of its subsidiary, Abitibi-Consolidated Inc., as
they relate to facilities owned by Abitibi-Consolidated. In addition, the
Company estimates it will incur an after-tax asset impairment charge of
approximately $110-$130 million in the fourth quarter related to Bowater
Incorporated assets. An additional estimated $230-$270 million after-tax
impairment charge related to assets owned by Abitibi-Consolidated is not
expected to impact consolidated fourth quarter AbitibiBowater earnings as it
will be eliminated by the fair value adjustments recorded in the purchase
Over the next four months, the Company will undertake a comprehensive
review of all aspects of the business in an effort to further reduce costs,
improve its manufacturing platform and better position the Company in the
global marketplace. The Company will be reaching out to various stakeholders
in an effort to address challenges, which are exacerbated by the rapid rise of
the Canadian dollar.
Given the specific pressures in Eastern Canada relative to wood
availability, energy and labor, a second phase of closures could take place by
mid-2008. Final decisions regarding the actions to be taken and the locations
impacted will be confirmed in the second quarter of 2008.
Furthermore, over the next four months, AbitibiBowater will also be
conducting an in-depth review of its wood products business with the objective
of selling non-core assets, consolidating facilities where appropriate and
curtailing or closing non-contributing operations.
Immediate challenges notwithstanding, AbitibiBowater remains intent on
conducting its business with an unsurpassed commitment to sustainability,
reflecting its ongoing commitment to environmental responsibility, social
desirability and economic viability.
The difficult steps announced today are part of a comprehensive road map
designed to better position the Company for the future, an objective that is
clearly in the long-term best interests of all AbitibiBowater stakeholders -
employees, shareholders, suppliers, customers and communities alike.
A conference call hosted by management to discuss this announcement will
be held today at 4:30 PM (Eastern). Interested parties should dial
514-868-1042 or 866-898-9626 10 minutes before the beginning of the call,
which will be webcast at www.abitibibowater.com, under the "Investors"
Participants not able to listen to the live conference call can access a
replay, which also will be available on the "Investors" section of Company's
website beginning an hour after the conclusion of the call and continuing
until December 6, 2007, by dialing 514-861-2272 (passcode 3244150).
AbitibiBowater produces a wide range of newsprint and commercial printing
papers, market pulp and wood products. It is the eighth largest publicly
traded pulp and paper manufacturer in the world. Following the required
divestiture agreed to with the U.S. Department of Justice, AbitibiBowater will
own or operate 29 pulp and paper facilities and 35 wood products facilities
located in the United States, Canada, the United Kingdom and South Korea.
Marketing its products in more than 80 countries, the Company is also among
the world's largest recyclers of newspapers and magazines, and has more
third-party certified sustainable forest land than any other company in the
world. The Company's shares trade under the stock symbol ABH on both the New
York Stock Exchange and the Toronto Stock Exchange.
Statements in this news release that are not reported financial results
or other historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. They include,
for example, statements about our planned reduction of newsprint and
commercial printing papers capacity, the closures of certain of our paper and
sawmills, our ability to realize synergies from the combination of
Abitibi-Consolidated Inc. and Bowater Incorporated, the anticipated timing of
and the progress of integration efforts related to the combination, our
ability to meet our $1 billion debt reduction target (including the success of
our program to sell non-core assets, consolidate operations and the success of
other actions aimed at reducing our debt), our plan to suspend our dividend
until business conditions improve, the continued growth of our international
newsprint position, our competitive position, our ability to maintain and
improve customer service levels, our financial performance, and our business
outlook, strategies and assessment of market conditions. Forward-looking
statements may be identified by the use of forward-looking terminology such as
the words "will", "could", "expect", "believe", "anticipate", and other terms
with similar meaning indicating possible future events or actions or potential
impact on the business or stockholders of AbitibiBowater.
These forward-looking statements are not guarantees of future
performance. They are based on management's assumptions, beliefs and
expectations, all of which involve a number of business risks and
uncertainties that could cause actual results to differ materially. These
risks and uncertainties include, but are not limited to, an inability to
reduce newsprint and commercial printing capacity as quickly as anticipated,
an inability to obtain timely contributions to our cost-reduction initiatives
from our unionized and salaried employees, the continued strength of the
Canadian dollar against the U.S. dollar, worsening industry conditions and
further growth in alternative media, actions of competitors, the demand for
higher margin coated and uncoated mechanical paper, our ability to realize
announced price increases, and the costs of raw materials such as energy,
chemicals and fiber. In addition, with respect to forward-looking statements
relating to the combination of Abitibi-Consolidated and Bowater, the following
factors, among others, could cause actual results to differ materially from
those set forth in the forward-looking statements: the risk that the
businesses will not be integrated successfully or that the anticipated
improved financial performance, product quality and product development will
not be achieved; the risk that other combinations within the industry or other
factors may limit our ability to improve our competitive position; the risk
that the cost savings and other expected synergies from the transaction may
not be fully realized or may take longer to realize than expected; and
disruption from the transaction making it more difficult to maintain
relationships with customers, employees or suppliers. Additional factors are
listed from time to time in AbitibiBowater's filings with the Securities and
Exchange Commission and the Canadian securities regulatory authorities,
including those factors contained in the company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2007 and the company's
registration statement on Form S-3 filed on October 29, 2007, under the
caption "Risk Factors." All forward-looking statements in this news release
are expressly qualified by information contained in the company's filings with
the Securities and Exchange Commission and the Canadian securities regulatory
authorities. AbitibiBowater disclaims any obligation to update or revise these
Any information about industry or general economic conditions contained
in this news release is derived from third-party sources that the company
believes are widely accepted and accurate; however, the company has not
independently verified this information and cannot assure its accuracy.