Blue Ridge — a major producer of cartons in the United States with clients like Minute Maid — was apparently on Hart’s list. Blue Ridge Paper employs 1,300 people between its main plant in Canton and satellite operation in Waynesville. A major downsizing, let alone a plant closing, could have dire consequences for the economy of Haywood County.
But workers find comfort in the price Hart’s willing to pay for their mill: $338 million.
“He’s not going to spend that much money and not try to stay in it,” said Ray James, a mill worker for four years. “He’s got deep pockets.”
Mill workers interviewed on the street in Canton largely shared the same opinion.
“Most people think the buyout is going to be good. He has the financing and money. He’s interested in being in the business,” said Bennie Robinson, 26. “He’s wanting our customer base. He wants to keep it running.”
That’s more than mill workers can say for their former owner, a venture capital firm from New York called KPS. KPS put up money to buy Blue Ridge in 1999 when the owner at that time, Champion International, put the mill up for sale. KPS was attracted by the bargain, only $33 million. Their only interest was flipping the mill as quickly as possible for a profit, not a desire to make paper, said Robinson.
“KPS was an investor. They wanted to make money. They could care less if it is a sandwich shop or paper mill,” Robinson said.
Hart, on the other hand, might actually be interested in investing in the mill’s infrastructure and machinery, said John Bradley, who’s worked at the mill 16 years.
“He’s got the resources,” Bradley said.
Despite Hart’s obvious intentions in the drink carton business, outside observers can’t help be puzzled about why anyone would want a 100-year-old paper mill that has lost $73 million over the past eight years. But the buyer has his reasons. For starters, he sees a turn around in the losing streak.
The future of Blue Ridge has largely been a waiting game for paper prices to rise. The demand for drink cartons had shrunk in the past decade. Plastic was taking over in the grocery stores. Meanwhile, kids were forgoing milk from school cafeterias for sodas and juice out of vending machines.
The demand for the other paper lines at Blue Ridge declined as well. Email decreased the demand for envelope paper, for example, another type of paper Blue Ridge makes.
Too much supply and not enough demand led to a slump in paper prices. Paper prices fell so low it practically cost Blue Ridge more to make the paper than they could sell it for.
“People were saying for years the industry was oversupplied,” said Ken Waghorne, an analyst with RISI, a forest products industry trade group. “Recently it has been all in the buyers’ favor.”
Under the pressure, mills began shutting down. Eventually enough would shut down that supply and demand would stabilize, and prices would come back up. The question was whether Blue Ridge could hang on until then.
Blue Ridge cut overhead wherever possible: downsizing its workforce by 100 employees, turning over inventory quicker, even trimming long-distance phone bills. Blue Ridge racked up a $213 million debt keeping the mill afloat during the paper price slump. It seems now, however, that the company made it through the lean years.
Mill closures elsewhere in the country reduced the drink carton supply by 10 percent in the past few years, and the supply of the other paper lines Blue Ridge competes in has been reduced by 20 percent, Blue Ridge CEO Rich Lozyniak estimated. It was enough for paper prices to inch back up. Blue Ridge not only stopped bleeding, but began to show a profit. That finally made Blue Ridge an attractive buy.
A global empire
Another reason behind the purchase seems to be the global ambitions in the drink carton industry of the buyer, billionaire Graeme Hart.
After dabbling in various enterprises, Hart began his foray into the drink carton industry 18 months ago. Hart is now the second largest drink carton maker in the world, mostly in Europe. Six months ago, his foray expanded to America with the purchase of a paper mill in Arkansas that also makes drink cartons under the name Evergreen. Now with Blue Ridge, Hart owns a large share of the drink carton business in the United States.
“The big picture is fairly clear. We’ve got a significant strategic investment in packaging. Blue Ridge is a logical extension of those investments,’’ Greg Cole, an executive with the Rank Group, told a reporter in New Zealand with the international business news organization Bloomberg last month.
Waghorne said the drink carton industry will likely continue to consolidate into the hands of fewer companies in coming years.
“It looks like Rank is becoming a big player in that consolidation,” Waghorne said.
While the cardboard drink carton industry in the United States has been declining, the market for drink cartons globally is expanding, especially in China, according to Waghorne. Unfortunately, Blue Ridge doesn’t make the right kind of carton to capitalize on the overseas market Hart seems most interested in.
The rest of the world uses a different kind of drink carton. Instead of gable-top cartons — the kind that can be folded and pushed open into a spout at the top — the rest of the world uses cartons akin to the juice boxes kids take in their lunch and stab with straw, or the kind soy milk comes in. They don’t need refrigeration, are smaller and are used for everything from fruit juice to milk.
Most of Hart’s purchases have been into that kind of drink carton. His purchase of the Evergreen mill and now Blue Ridge indicate he’s interested in the gable-top industry as well, though there’s not nearly as much potential for growth as the overseas market, Waghorne said. Overseas, the kind of carton that doesn’t need refrigeration is much more popular, especially in developing nations like China.
The other paper line
While Hart’s intentions in the drink carton industry seem clear, Blue Ridge Paper has another manufacturing line that doesn’t fit so neatly into Hart’s world. Blue Ridge also makes paper for envelopes, catalogues, newspaper inserts, freezer paper, and food packaging like Duncan Hines cake boxes or the cardboard boxes bacon comes in. More obscure spin-offs include things like lollipop sticks and the paper packets that hold individual tea bags. These other paper lines account for nearly 50 percent of what the mill makes.
John Bradley, a mill worker for 16 years, thinks Hart will keep the line running. The paper machines are old, but that’s also their forte. Blue Ridge Paper can fill small orders larger mills with newer machines would turn down. New machines run by other mills are geared for bulk orders. If a customer wants a small amount of purple paper, by the time their machines get ramped up and ramped down, it’s made far more purple paper than the customer actually wants. The mill doesn’t want to swallow the waste, but the customer doesn’t want to pay for more paper than they need.
That’s where Blue Ridge Paper’s older machines have an advantage. They can do those smaller orders without the waste, thus filling a niche, Bradley explained.
Workers believe as long as these other paper lines are profitable, Hart will keep them running.
Nonetheless, it’s enough to be nervous about, said Howard Taylor, the president of the paper mill union, Smoky Mountain Local 507.
The machines that make these other paper lines can’t be easily converted to drink cartons.
“A conversion of a machine is not a cheap investment. We are talking tens of millions of dollars,” said Blue Ridge CEO Rich Lozyniak.
One side effect of the buyout: the mill might not be called Blue Ridge Paper anymore. The mill could become part of the Evergreen brand name, the drink carton mill Hart bought in Arkansas. If so, it’ll take some getting use among locals, who had just barely adjusted to the name Blue Ridge. The mill is still widely called Champion, the name of its owner up until 1999.
Workers will likely know far less about the economic health of the company under the Rank Group than in recent years. After the mill took out loans in the form of publicly traded bonds a few years ago, it had to make its financial statements public. Profits, losses, revenues, expenses have all been there for all to scrutinize.
But the bonds will be paid off out of the sale price, making the company 100 percent privately held. That means no more financial information, other than what management chooses to share or what gets leaked by employees in the know.