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Westrock puts conditions on potential sale that require buyer to destroy equipment critical to future operations

GRAPHIC FILE PHOTO - Conditions set by Westrock for the sale of its Newberg mill require that the buyer destroy its two remaining paper machines before the metal is sold for scrap.

Ever since China stopped buying the recycled paper Oregonians dutifully stow in their curbside recycling bins, there's been hope of reopening one of Oregon's shuttered paper mills to reuse that paper as raw material.

But it appears increasingly unlikely to happen at the mill in Newberg.

Georgia-based Westrock, which bought the mill in October 2015 and closed it soon after, offered an $8.25 million deal in January to sell the 200-plus acre facility to an Idaho company — on condition the papermaking machinery be destroyed and turned into scrap metal — according to a leaked purchase agreement submitted last month to the antitrust division of the U.S. Department of Justice.

Westrock also apparently rebuffed a $15 million purchase offer in April by New York businessman Rahul Kejriwal, who told union leaders he'd like to reopen the Newberg mill, currently valued by Yamhill County at more than $17.4 million, and use Oregon's recycled paper to produce pulp and paper there for export.

In an email submitted to federal antitrust officials, Westrock told Kejriwal the mill was under contract to sell and "the paper machines in the mill must be destroyed and not put back into use as a condition of sale."GRAPHIC FILE PHOTO - A few months before selling to Westrock, SP Fiber Tech converted one of its newsprint machines to produce brown kraft paper (above), used in paper bags and cardboard products. Scrap metal dealers are eyeing the mill for the millions of pounds of steel and aluminum (below) at the Wynooski Street site.

Such anti-competitive practices have been going on for years in the paper industry, said Greg Pallesen, president of the Association of Western Pulp and Paper Workers (AWPPW) union, which represented the more than 200 workers in Newberg who lost their jobs when the mill was closed in January 2016.

"It's market manipulation," Pallesen said. "It's buy your competitors, close key mills. That (has) the result of reducing supply and driving the price up."

Westrock bought mills in Newberg, Ohio and Georgia for $289 million in fall 2015. The company's CEO issued a release saying the Oregon and Georgia mills would help diversify the company's product offerings and Westrock would "improve the cost structure of both mills."

Then it quickly closed the Newberg and Ohio mills. An internal memo that surfaced a few weeks later indicated that despite assurances from Westrock, the company had intended to close the Newberg mill from the start.

"Obviously they had zero intent to run the mills," Pallesen said. "In the instant they announced the closures, their stock went up and the price of the product they were making went up."

The AWPPW negotiated closure terms for the workers at the Newberg mill, but "They would tell us, 'We're not going to sell to anybody who's going to restart'" the mill, Pallesen said.

Repeated attempts to gain comment from Westrock officials, including those within its corporate communications department, have been unsuccessful.

Westrock eyes purchase of another mill in Longview, Wash.

In January, Westrock announced its intent to go forward with a $4.9 billion merger with Illinois-based Kapstone Paper and Packaging Co., the fifth-largest paper and packaging company, whose holdings include Washington paper mills in Longview and the Seattle area. Westrock is the country's second-largest producer of paper and packaging products.

The AWPPW, which represents nearly 4,000 workers, sent a May 8 letter to the U.S. Department of Justice arguing the proposed buyout "poses serious threats to full and fair competition" and asked federal authorities to halt the pending "permanent destruction" of the mill equipment in Newberg.

"There's evidence that there's violation of antitrust laws," said Edgar Sargent, a partner in the Seattle law firm that represents the AWPPW in the matter. "That clause in the contract that the equipment had to be destroyed, it's just bizarre. Why would you do that?"

The leaked purchase agreement for the Newberg mill requires the buyer to destroy the two remaining papermaking machines, including Machine 5, which was converted from producing newsprint to brown kraft paper in fall 2015 just prior to the mill being shuttered. The agreement also calls for the destruction of other equipment, including all of the lines that grind virgin wood chips and feed fiber into the papermaking machines, as well as the machines that capture recycled fiber.

However, former millwright Mike Herron said in an early June interview that the mill's de-inking facility on the southwestern side of the Newberg site had been disassembled and the machinery shipped to Georgia during the process of mothballing the facility after its closure.

He opined that in order to restart the mill, the buyer would have to install new and expensive equipment in order to capture the recycled fiber necessary to make paper. Prior to its closure, SP Fiber Tech officials boasted that more than 75 percent of the fiber used in making paper at the plant came from recycled newsprint and other paper products.

Also ordered to be destroyed as part of the purchase agreement are the giant electrical motors that powered the paper machines, which could be used for non-papermaking purposes and are valued at $300,000 to $400,000 apiece.

Kimberly Robinson, manager of Cataldo, Idaho-based KBD Enterprises, the company that made the offer on the mill, did not respond to repeated requests for comment on the terms of the sale.

Pallesen said it's unclear now if that sale will go forward as KBD Enterprises may not have been able to come up with the necessary cash.

The DOJ Antitrust Division has not returned a formal request for a status update on the complaint as of June 6.

Environmental costs

The site where the Newberg facility stands has housed a mill for more than 130 years, starting as Spaulding Lumber in the 1880s. During the time since, sources say, untold amounts of hazardous materials have found their way into the soil at the mill site and will have to be cleaned up if the mill is to be converted to another use such as light industrial, commercial or residential.

Clean-ups at other mill sites typically reveal diesel fuel, motor oil and other petroleum products, but that may be the least of a purchaser's worries, as Herron told this newspaper last year that there was fluid leaking from electrical transformers at the mill, which workers were regularly collecting and disposing. That stopped when the mill shuttered, he said, and the fluid that cools electrical transformers contains PCBs, a known carcinogen.

Fortunately for Westrock, however, the sales agreement absolves the company of any responsibility for environmental conditions at the Newberg mill, including forbidding the buyer from holding Westrock responsible or filing suit should the site be found to be contaminated. The buyer, under the sales agreement, would also be required to secure a bond, an environmental liability policy and an escrow account to protect Westrock from financial liability if an environmental clean-up is required.

"(Westrock) shirks all environmental responsibility by demanding any purchaser must assume all past, present and future environmental issues," Pallesen said, adding that it's likely if a scrapper purchased the Newberg site they would file for bankruptcy rather than clean up the site, leaving the city, county and state to deal with it.

However, it still makes good environmental sense to make paper here, Pallesen said. Oregon mills are among the cleanest in the world, and the state has an ample supply of scrap wood, recycled paper and other fiber to make pulp and paper, plus cheap electricity and a skilled workforce.

The China factor

Historically, Oregon was a world leader in paper manufacturing, boasting an industry that employed more than 10,000 workers in 1980, according to the Oregon Employment Department. But the industry has been gradually shifting overseas, where environmental regulations are lighter and land and labor costs lower.

In the past seven years, mills in West Linn and Oregon City have also closed. In May, a division of wood products giant Georgia Pacific in Camas, Wash., shut down.

When the Oregon City mill closed in 2011, owners blamed China for the lack of supply of recycled paper. China had bid up the price of recycled paper collected at Oregon curbsides so local mills couldn't afford it, then used it overseas for reprocessing there.

But in an abrupt turnaround, China announced last fall it would stop buying mixed paper and plastics collected here, on the grounds there were too many impurities mixed in.

China's decision caused panic in the recycling industry, making it cheaper in some cases to dump recyclables into landfills than reuse them.

Building a new paper mill in the Northwest is conservatively estimated to cost between $500 million and $1 billion, so the recycling industry has pinned some of its hopes on the reopening of abandoned mills that still have their papermaking equipment, such as those in Newberg and West Linn. The West Linn mill is tied up in bankruptcy proceedings, however.

Mystery buyer

Kejriwal, head of Kejriwal Singapore International, did not respond to multiple interview requests, and it's unclear where he'd get the finances to buy the Newberg mill. His letter of intent to buy the plant for $15 million, provided by Pallesen, promises $5 million up front and $1 million a year for the next 10 years.

Kejriwal also attempted to buy a paper mill in Bangor, Maine, for $58 million in early 2015, according to the Bangor Daily News. That attempt was thwarted by that mill's owner, Verso, who allegedly told KSI the mill had already been sold to a scrap dealer when it had not. Kejriwal approached the DOJ's Antitrust Division claiming unfair trade practices. He added that if he purchased the mill in Maine he would restart it to produce paper.

In a story in the Bangor Daily News, Kejriwal described his firm as an "international paper manufacturing and sales organization with more than $1 billion in sales of paper and paper-related products and more than 8,000 employees in 23 countries.

"We are the world's largest manufacturer of ruled recycled paper products and are one of the largest newsprint manufacturers in Asia, principally selling into the rapidly growing publications paper market there."

PMG reporter Steve Law contributed to this story

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