October 9, 1997 in Nation/World

Champion To Sell Assets, Cut Jobs

Stephanie H. O'Brien Bloomberg News
 

Champion International Corp. said it will sell operations with $1.4 billion in sales, cut 2,000 jobs, and take a charge of $553 million as it focuses on its more profitable paper operations.

The charge, which the company said will be taken mostly in the fourth quarter, is equivalent to $5.77 a share, indicating a big loss for the period and the year.

Champion’s actions follow recent moves by other paper companies to trim jobs and sell assets in an effort to improve cost structure, analysts said. Even if the industry can’t fully escape its boom-and-bust cycle, companies need to deliver better profits and stock yield to shareholders, they said.

“The buzzword is ‘focus’,” said Kathryn McAuley, an analyst at Brown Brothers Harriman.

“Through the process of becoming more focused, you become more profitable. That’s the current thinking in the industry.”

The Stamford, Conn., company said it will sell five businesses over the next seven or eight months that employ about a quarter of its work force and generate one-fourth of revenue.

The job cuts, to be made over three years, represent 11 percent of employees in continuing operations.

In July, International Paper Co. said it will cut 10 percent of its work force and sell $1 billion in assets, and Georgia-Pacific Corp. said last month it will separate its paper and timber operations.

“Paper companies have taken a real hard look at assets that are underperforming and have decided to fix or get rid of them,” said Matt Berler, an analyst at Morgan Stanley Dean Witter Discover & Co.

Champion shares fell 50 cents to $64, after hitting a 52-week high of $66.50 earlier.

Company officials declined further comment about the timing or effect of the charge. Champion is expected to earn 19 cents a share in the fourth quarter, based on the average estimate of nine analysts surveyed by IBES International Inc. Analysts expect a loss of 23 cents for the year.

Champion said the restructuring plan announced Wednesday is expected to lift pretax profit by $400 million a year, with $85 million coming already this year.

“This is what the market wanted Champion to deliver,” Brown Brothers’ McAuley said. “The divestitures are businesses that weren’t emphasizing the company’s strengths.”

The five businesses to be sold include newsprint, recycling, coated and uncoated specialty papers, and packaging. Champion also will sell 325,000 acres of the roughly 5 million acres of timberland it controls.

The asset sales and job cuts will reduce Champion’s payroll by a total of 8,255 employees, or 34 percent of the current work force of about 24,300, the company said.

Champion plans further savings through cost reduction, improved efficiency and changes in its product lines.

Champion, which earlier this year linked executive pay to stock market performance, is moving to boost returns to investors, analysts said. While many U.S. companies have bowed to pressure for greater accountability, the paper industry has been slow to respond, analysts said.

“Investors had lost complete confidence in Champion’s management,” Morgan Stanley’s Berler said. “Its new management has had to make some dramatic changes to regain that confidence.”

Champion said it’s identified the businesses that offer the best opportunities for profit. It plans to make acquisitions in coated papers, which are used in magazines and catalogs and softwood timberlands, which support its other products.

Demand for coated papers is increasing, Olson said.

“Coated papers are more capital-intensive than other grades,” he said. “That business is not easy to get into. We’ve been in it a long time and we’re good at it.”

Champion has a 17 percent to 18 percent share of the U.S. market for lightweight coated paper, Olson said. It’s the second-largest producer of coated papers in the U.S., after Consolidated Papers.

Champion said it will sell its newsprint business, which includes two Texas mills, in Lufkin and Sheldon. It also will sell its paper recycling business, based in Houston, and will sell a mill in Deferiet, N.Y., that makes coated and uncoated specialty papers, used in annual reports and advertising inserts.

The company also will sell an Ohio premium-paper mill, and mills in Canton, N.C., and Waynesville, N.C., and six DairyPak packaging plants. The 325,000 acres of timberland to be sold are in New York, Vermont and New Hampshire.

Proceeds from the asset sales will be used to pay down debt and reduce interest expense, the company said.

Champion reported 1996 net income of $141.3 million, or $1.48 a share, down sharply from $771.8 million, or $8.01 a share, in 1995.


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