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:
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.
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.
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
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