December 4, 2008 / 2:46 PM / 9 years ago

UPDATE 2-AbitibiBowater to close plants, cut jobs

* Closing two plants, idling other operations

* Cutting 1,100 jobs, see $45 mln charge (Adds details, CEO comments, updates share price move)

By Euan Rocha and Matt Daily

NEW YORK, Dec 4 (Reuters) - AbitibiBowater Inc ABH.N ABH.TO, the largest North American newsprint maker, said it would slash production and eliminate 1,100 jobs in a new effort to cut costs and pare output due to declining demand.

North American newsprint makers have shutdown numerous operations in recent quarters as newsprint demand in the region has fallen at an alarming pace, due to the growing influence of the Internet and the increasing difficulties of newspaper publishers.

However, despite weakening demand, newsprint prices have remained fairly strong, as capacity cuts have helped buoy prices.

The Montreal-based company said it would permanently close newsprint mills in Grand Falls, Newfoundland, and in Labrador, as well as a paper converting facility in Covington, Tennessee.

AbitibiBowater will also temporarily idle its Alabama River mill in Alabama and two machines in Calhoun, Tennessee, and implement revolving downtimes at other facilities until market conditions improve.

“Our announcement goes a long way in helping to bring the North American (newsprint) market into balance,” Chief Executive Officer David Paterson said in a telephone interview with Reuters.

However, Paterson cautioned that the company expects 2009 to be another bad consumption year in North America, while overseas demand will be crimped by the strong U.S. dollar.

“The North American newsprint market continues to contract and our customers have told us they anticipate further decline. International customers have also indicated that export growth will not be as strong in the coming year,” said Paterson.

The company will incur about $45 million in severance and other closure charges, but should reach synergies from the merger of Abitibi and Bowater of $375 million by the end of 2008, a year ahead of expectations.

Shares in the company were off 1 cent to 48 cents in afternoon trade on the New York Stock Exchange.

AbitibiBowater’s shares have crumpled in recent months on mounting concerns that the company will not be able to refinance about $1 billion in debt maturities which come due in 2009.

However, Paterson said the company’s liquidity position has been improving from quarter to quarter, helped by a weakening Canadian dollar, lower energy prices and strength in newsprint pricing.

The company is working on selling assets in Canada and overseas, including a paper mill in South Korea. The proceeds would be used primarily to pay down debt.

“The (sale of) the Korean mill has been difficult and the Korean economy has been the main culprit there ... We think that (the sale) will probably be a second-half next year event,” said Paterson. (Reporting by Euan Rocha and Matt Daily, editing by Dave Zimmerman and Gerald E. McCormick)

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