April 16, 2009 / 6:47 PM / in 9 years

Union says merger caused AbitibiBowater failure

TORONTO/VANCOUVER (Reuters) - The 2007 merger of newsprint makers Bowater Inc and Abitibi-Consolidated caused the failure of debt-laden AbitibiBowater Inc ABH.N, the company’s main Canadian union said on Thursday.

<p>John Weaver (L) looks at David Paterson, chairman, president and executive chairman of Bowater Incorporated, in Montreal January 29, 2007. REUTERS/Christinne Muschi</p>

While weak newsprint demand is often blamed for the undoing of AbitibiBowater, the root of the collapse was in the merger of two companies, which already had huge debt loads, said Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada (CEP).

“This is the result of some people who made some really dumb decisions,” Coles said in a telephone interview.

AbitibiBowater, North America’s largest newsprint maker, filed for bankruptcy protection in the United States on Thursday, as it failed to secure lender support for its restructuring plan.

AbitibiBowater said it and its subsidiaries will also seek protection under the Companies’ Creditors Arrangement Act in Canada. It intends to file in Canada on April 17.

Some analysts argue that the merger did not cause the collapse as it did not result in leveraging the combined entity.

“The cards were truly stacked against them ... If anything, it (the merger) probably postponed the bankruptcy, simply because the combined entity exerted greater control over (North American newsprint) capacity,” said Morningstar analyst Daniel Rohr.

Coles said bondholders will get “skinned” as AbitibiBowater reorganizes under bankruptcy protection but he added that the extremely high interest rates that some of them were receiving helped push the company over the edge.

Earlier this month, CEP appealed to the Canadian government to intervene in AbitibiBowater’s restructuring talks with lenders and to reassure the company’s investors and creditors that the government would help the company make credit arrangements.

The union has accused the government of paying scant attention to the woes of the forestry sector, even though the sector employs about twice as many people as Canada’s auto industry.

“This has been an ongoing problem between us and the federal government for an extended period of time. They have written the sector off. We think that’s an error,” Coles said.

Coles warned that lack of action by the government will result in the failure of more Canadian papermakers.

The newsprint industry has been hurt badly in recent months as lower advertising revenue and the growing influence of the Internet have cut newsprint demand and forced many newspapers to seek bankruptcy protection.

Industry data indicates U.S. newsprint consumption fell 29.1 percent in February -- the 60th consecutive monthly drop and the steepest year-over-year comparison on record.

Analysts worry that a bankruptcy court judge might order AbitibiBowater to keep its mills running to generate cash. This would flood an already over-supplied market with more newsprint and lead to a collapse in already weakened prices.

AbitibiBowater employs more than 14,000 people, with more than 10,000 of them based in Canada. Of these about 7,000 are in Quebec and more than 2,500 are employed in Ontario.

The union wants assurances that the pensions of workers and retirees will be protected. CEP represents more than 60,000 forestry workers, including about 7,500 AbitibiBowater employees.

“We believe firmly that jobs and mills cannot be saved by attacking workers’ wages and pensions,” Coles said.

CEP may even consider taking some form of ownership stake in the restructured AbitibiBowater, he said. “It’s always one of the options.”

Reporting by Allan Dowd and Euan Rocha; editing by Peter Galloway

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