Another Buyout

"Your boy really did his homework on this one, Fox. And you'll have the shortest executive career since that pope that got poisoned."
--Investment banker (Wall Street)

The assets once owned by my former employer are once again in play. We've reviewed the timeline and the sage previously.

In the late 1990s, the company was purchased by a Scandinavian operator. When that merger didn't work, the assets were sold to an arm of a large private equity firm.

That didn't work either. After all, what did the private equity folks know about making paper? Also, like all PE firms, they were operating with big leverage. As markets continued to sag, Chapter 11 beckoned. After a year or so of that, the PE firm has basically transferred control to creditors.

The syndicate of creditors don't want the thing. So they've tentatively accepted an offer from another operator in the industry. This company is smaller and has a worse balance sheet than the target.

With both companies and end markets so weak, how can this deal get done? Well, the junk bond market has been on fire (although that may be changing), enabling high credit risks to obtain debt financing on the cheap. Also, the syndicate of creditors has apparently offered what amounts to 'vendor financing.'

Similar to the classic scene from Wall Street, where the lending syndicate for the Blue Star buyout gets assurance that its loans will be paid back by selling planes and hangars, it seems like this merger only gets done with the promise of more shutdowns, closures, and asset sales.

While visiting friends on their Central Wisconsin farm this past weekend, I spied the familiar candy-striped smoke stacks of the Biron Mill--where I began my career. Couldn't help but wonder if those stacks will soon go dormant for good.

If so, then this sad story of decline may approach closure.