Tembec Plan Gets Court Approval; Recapitalization. Going Green Helped Us Survive: CEO - March 28th, 2008

Thursday, February 28, 2008

LYNN MOORE

Being the right shade of environmentally correct green helped Tembec Inc. survive an industry-wide downturn long enough to be restructured and reborn, its chief executive officer said yesterday.

Customers, suppliers and employees stuck with the forestry giant for two tough years, despite continuing reports that the company was on its deathbed, James Lopez said during an interview in Montreal.

''We have saved the company'' an ebullient Lopez said minutes after an Ontario court sanctioned a recapitalization plan recently embraced by Tembec debtholder and shareholders.

''We are very, very fortunate that we have a new beginning. We have a new balance sheet that is going to be extremely competitive with the rest of industry. We really have another shot at it,'' said Lopez, who succeeded Frank Dottori as Tembec CEO 25 months ago.

Under Dottori's leadership, Tembec decided to seek certification under the Forest Stewardship Council, a respected forest- management process widely considered to be the most stringent.

Other Canadian forestry companies opted for other certification programs.

As decreased product demand, rising costs and a soaring loonie walloped the forestry sector, Tembec was among the companies to close or idle assets. Tembec and its joint ventures now employ about 8,000 people. Three years ago, it employed 11,000.

But throughout the storm, Tembec paid into its FSC-certification programs and audits to become, as Lopez said, ''the global giant'' in FSC certification.

And did that help Tembec survive the storm?

''Absolutely,'' Lopez said.

Some of Tembec's best customers are married to FSC-certified products, he noted.

''We are the preferred supplier to Home Depot, the biggest buyer of lumber in North America, only because of our FSC certification,'' he said.

Other major pulp customers, ''household names'' that don't want to be identified, became customers and hung on because of the certification.

While bigger competitors – namely Abitibi-Consolidated, now AbitibiBowater - were the target of protests even though they have third-party certification programs, Tembec was feeling the love.

''We had a lot of fans out there and a lot of people cheering for us out there because we maintained our environmental profile as we were going through (hard time) and they wanted to see us succeed,'' Lopez said.

Not a ''single significant customer'' deserted the company and only a few suppliers insisted on cash-on-delivery, he said. Employee turnover was extremely low, he said.

A key union also supported Tembec's recapitalization plan, which should close and be implemented tomorrow.

The plan converts $1.2 billion U.S. of debt into new equity and implements a new four-year term loan of up to $300 million to provide further liquidity.

It also massively dilutes existing shareholders' stake in the company.

They will initially have about five per cent of the new shares while debtholders would acquire about 95 per cent.

The debtholders have also nominated five people to sit on Tembec's board, joining four existing board members, including Lopez. A board chairman will be named during the first board meeting, sometime in March, Lopez said.

Before the fall, Tembec's operations should be generating cash, he said. Then Tembec will ''pursue opportunities to grow once again.''

Material reprinted with the express permission of: “Montreal Gazette Group Inc.”, a CanWest Partnership

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