Thursday, January 10, 2008

Pope and Talbot Sells Pulp Mills

Pope and Talbot, which filed for bankruptcy a few months ago, announced today the sale of their pulp business for $225 million, which includes $100 million of value from working capital which is not included in the sale. So, their three pulp mills were sold for $125 million. On the one hand, this is slightly disappointing- these are high cost pulp mills and if they were shutdown, it would improve the supply/demand situation in the pulp market. But what is very interesting is the purchase price of $125 million.

Pope and Talbot's Pulp Business
819,000 tonnes NBSK pulp
EBITDA for 6 Months ending June 30, 2007 = $-9,527,000
Value = $125 million

SFK's NBSK Pulp Business
375,000 tonnes NBSK pulp
EBITDA for 9 months ended September 31, 2007 = $+35,940,000
Implied Value = ???

SFK has only 46% of the NBSK production of Pope and Talbot, but it is also significantly more profitable than Pope and Talbot. (Pope and Talbot is currently bleeding money) I had expected their pulp business to be near worthless, but the fact that it received such a large sum is encouraging. I don't know what valuation that implies for SFK's NBSK business, but it would begin with something like this:

SFK Valuation
Current Enterprise Value = 330 million

Working Capital - all other liabilities = 73 million
NBSK Pulp Mills = ???
RBK Pulp Mills = ???

3 comments:

viking said...

Nick, to understand Pope and Talbot's sale of the three pulp mills I think you need to look at each mill individually:
1.) Mackenzie,BC Pulp Mill: I think this mill is a decent pick-up (as it was upgraded relatively recently). The issue is wood chips supply and the cost.
2.) Nanaimo, BC Pulp Mill: I think this mill has cost issues (needing significant capital $ to make it efficient). It also has severy wood chip issues. This mill may yet be shuttered and the new owner may have to spend additional $ to shutter (making overall purchase price go up).
3.) Oregon Pulp Mill: not sure about the profitability of this facility.

P&T was smart to do an all or nothing tender. Net/net, still too early to draw too many conclusions.

Nnejad said...

That is true, although it is hard to get any good information regarding the individual mills. Also interesting is if you take a more historical look at their respective pulp businesses:

Pope and Talbot Pulp Business EBITDA
-4,571 6 months 2007
46,567 2006
12,825 2005
42,342 2004


SFK NBSK Pulp EBITDA
35,940 9 months 2007
39,776 2006
29,270 2005
62,017 2004

Ignoring the current problems plaguing the Pope mills, it seems you should give a slightly higher value for SFK's NBSK mill based on historical performance.

Bobo said...

I was just surfing the net and came on your comments regarding Pope & Talbot. I am trying to value the enterprise as the bonds are selling at a large discount (67) or so. These are the senior secured, which gives an approximate $240 mm on them. Have you come across any workouts or other info that may be helpful? Thanks,
Bobo