Manistique Papers Officially Changes Hands

MANISTIQUE – The conversion to recycled paper has proved to be a real rollercoaster ride for the area’s oldest manufacture, Manistique Papers. Once believed to be their salvation, rising raw material costs eventually forced the mill into bankruptcy. But now that same method of production has led to its revival.

After several months of negotiations, the Watermill Group, owner of FutureMark, the nation’s largest producer of 100 percent recycled coated paper, has signed on the dotted line and is set to inject success into the uncoated paper lines produced in Manistique.

“It’s nice to be here,” said Steve Silver, president of FutureMark. “This has turned out to be such a great story.” Silver said, with all of the negative information in the press lately about private equity funds being “bad”, this was an example of a success story.

“A community pulled together to keep the mill alive long enough for someone like Watermill (a private equity firm) to come along, identify its market potential, and develop a plan for its survival,” he said.

This will be Silver’s second run at turning around a troubled paper mill. In November 2009, Watermill acquired Madison Paper Company’s mill in Alsip, Ill. With that purchase, Watermill owned North America’s only recycled coated paper mill.

The Alsip mill was owned by European company Myllykoski Corporation.

According to Silver, Myllykoski operated the mill, but kept the recycled aspect of its production “hidden”, saying years ago that recycled paper was considered inferior to virgin.

“The paper industry didn’t brag about using recycled paper. They tried to hide it because it was considered inferior. It was the old mentality, and as a result the business did not do very well,” Silver said.

As it turned out, it was the recycled aspect of the business that attracted Watermill.

Silver said, once they got their hands on the business’s information and started reading through it, they were drawn to things like the 100 percent recycled product, green energy, and the fact that it was in the unique position of being the only recycled coated paper mill in the U.S.

“From there, we started to think what if – what if we start chasing this big craze for environmental sustainability in the United States?” Silver said.

A corporate turnaround specialist, Silver said the theory of environmental sustainability or LEED (Leadership in Energy and Environmental Design) played a key role in the successful outcome of another project of his.

“My last turnaround was a big office furniture company,” he said. “We were the first ones in the country to have all of our office furniture certified for sustainability. From there, it doubled in size.”

Silver recalls dealing with one of his largest customers, Citibank.

“I got a call from the buyer from there one day, who said he just got the orders from upstairs that said everything we do from here on out has to be LEED certified. What is that and can you help me?”

Silver went on to say that his business with Citibank grew from $6 million to $25 million in just 12 months.

“A light went on,” he said. “I listened to what he said. One guy upstairs said everything going forward had to be sustainable. So if the purchasing people of Citibank and other fortune 500 companies are mandating their furniture has to be sustainable, they probably are doing the same thing with their paper and everything else they are using in that business. With that concept in mind, we took a gamble on FutureMark.”

Silver explains the theory: if they went out and told the story about paper that looks and costs the same as regular virgin paper, but has great environmental benefits, the big companies who were leaning that way would at least give it a look.

Their theory proved to be correct.

Within six months of buying the Alsip mill, they picked up more than 50 big Fortune 500 companies as customers, whose annual orders now account for half of the mill’s annual capacity.

“We are pretty sure we can do the same thing here,” Silver said. “Many of the companies we have at FutureMark also buy the uncoated paper that Manistique makes, and I suspect a lot of them don’t know it is available as 100 percent recyclable.

“The way it works, most fortune 500 companies have someone who is in charge of sustainability or CSR (corporate social responsibility). That manager is pulling down a paycheck. He normally reports to a chairman or CEO,” explained Silver. “He or she has to demonstrate they are making a difference if they want to keep their job or budget, so they are constantly looking for green products that will lower their carbon footprint.”

Once they have their foot in the door, Silver said, they have systems in place to explain how much water and energy is saved by using recycled paper.

“We developed a system where the customer can calculate how many trees and water they saved by using recycled paper,” he said. “It makes a big difference for a company who uses a lot of paper.”

After the sale was completed, the volatile cost of raw materials caused the Watermill Group concerns along the way.

“The fear with any recycle business is that the major raw material is wastepaper or trash,” Silver explained. “Twenty years ago, that paper was worthless. Basically, if you would pay for the truck to go pick it up, it was yours. That is not the case anymore.”

Today, he said, 40 percent of all the wastepaper in the U.S. goes to China, because they need paper and packaging, but have no trees. Virtually all of their mills make recycled product, and they look to Europe and North America to provide wastepaper.

That demand has forced the price way up, and has also made the price incredibly volatile, he explained. A year ago, between Christmas and June, wastepaper prices increased 45 percent. “What business can operate if your raw material costs increased 45 percent in six months?” asked Silver.

“Wastepaper has kind of been sold like heating oil, on a monthly spot market, so every month prices change,” he added. “A paper mill like Manistique had no way to protect itself from these huge spikes, and the spike that occurred around this time last year put this mill under.”

Operating under the theme, “We don’t always accept things the way they are”, Watermill was facing the same concerns at FutureMark.

To address the issue, they took a look at what they were paying, on average, for wastepaper over the past two years. From there, they negotiated contracts with major wastepaper suppliers to obtain the level of comfort they needed to follow through with the purchase of MPI.

Silver said, “We waited for the market to crash, which it did last fall, and then went to a number of the big generators and said, ‘Look, we will give you a fixed-price contract to supply us with wastepaper.’ We offered to pay above the market today but want that price locked in, so when it spikes six months from now, we are protected. We got several to agree, and now are getting about 50 percent of our volume at FutureMark on two- to three-year fixed-price contracts.

Those same vendors are interested in doing the same thing in Manistique,” he continued. “By locking in long-term fixed-rate contracts here, we are taking away the biggest threat this mill has. That was when we were sure we wanted to do this deal.”

Despite difficulty getting to Manistique, Silver was very complimentary about his trips to town.

“We are very proud to be here,” he said. “In a lot of ways, this is a little bit of the way America used to be, and it’s not always that way in the rest of the country. We walked through this place, and whether you are meeting the mayor or members of city council or the union chief, everyone is pulling the same way in this community, and I think that’s what made this country great.”

Silver said he looks forward to working with MPI General Manager Jon Johnson, the mill’s management team and workforce, and the leaders and citizens of Schoolcraft County.

Silver said it was the spirit of cooperation that sealed the deal for them.

“For your readers to know, we were interested in this deal, but to be honest with you, if the local units of government, the state and mBank, would not have stepped up, I doubt this deal would have been done,” he said. “A normal big bank would not have lent the money necessary to get this worked out. There were a lot of people who had a vested interest in saving this business, certainly people who worked here, but Kelly (George) is the guy who really stuck his neck out. He could have looked the other way … and I would say of all the people who did a great job here, mBank put their money where their mouth was and made it happen. If this business would not have been kept alive for the past seven or eight months, we would not have bought it, either. It went right down to the last minute, and what we saw every step of the way was the ability to want to do the right thing and find a way to get it done quickly”.

This article was originally published by mBank.

May 10, 2012