The Bangor Daily News
Tuesday, November 3, 1998
Bowater selling more land
By Mary Anne Lagasse and Orna Izakson, Of the NEWS Staff-- MILLINOCKET - Two weeks after Bowater Inc. sold 1 million acres of timberland to a Canadian paper company, it announced plans Monday to sell an additional 656,000 acres to an Alabama-based investment company for $155 million. Bowater's sale to McDonald Investment Co. Inc. of Birmingham, Ala., includes all of the timberland the company owns from Chesuncook Lake northwest to the Quebec border.
The sale property includes the section of the West Branch of the Penobscot River along which Henry David Thoreau made his famous trek north to the Allagash, the headwaters of the St. John River, the north shore of Moosehead Lake, Lobster Lake and an area that Bowater has managed as the St. John Ponds Remote Recreation Area.
McDonald's new lands will be managed by Wagner Forest Management Ltd. of Lyme, N.H., a timberland investment and forest management organization which manages about 1.6 million acres of land for clients in Maine, Vermont, New Hampshire, upstate New York and Ontario.
"This transaction continues the company's redeployment of its rich asset base for greater shareholder value,'' said Arnold M. Nemirow, Bowater's president and chief executive officer, in a prepared statement issued on Monday. Nemirow could not be reached for comment.
Bowater, the South Carolina-based parent company of Great Northern Paper Co., will use the $155 million from McDonald along with the $220 million from its Oct. 21 sale of 1 million acres of land and the Pinkham Lumber Co. to J.D. Irving of New Brunswick to reduce its debt, repurchase shares of stock and for other strategic purposes, according to a company statement.
Vaughn Stough, the vice president of timber operations for McDonald Investment Co., could not be reached for comment.
As part of both sales, Bowater will enter into agreements with McDonald and Irving to supply wood fiber to its papermaking operations at Great Northern's mills in East Millinocket and in Millinocket.
"They [the contracts] will carry us through the planned modernization at East Millinocket, with the option to renew,'' said Gordon Manuel, Bowater's director of government affairs. Manuel said the fiber supply contracts were not long-term. Modernization in East Millinocket is scheduled to be completed in the fall of 2000.
Manuel said it is too early to know how the sale to McDonald will affect the 55 people employed in GNP's woodlands department.
McDonald Investment Co. Inc. is a private, family-owned investment company, according to Henry Swan, the chairman of Wagner Forest Management Ltd. McDonald has large forest holdings throughout the United States. Last fall, McDonald purchased 816,000 acres of land in Sault Ste. Marie, Ontario, from Algoma Central Corp., which owns Canada's largest inland shipping fleet.
Swan said McDonald has a diversified investment portfolio of timberland and commercial real estate and other kinds of investments. Wagner's chairman said McDonald has done some significant conservation easement projects and has sold land to the Nature Conservancy and the Audubon Society in North Carolina, South Carolina, New York and Florida.
McDonald and Wagner are not looking to turn lake frontages into subdivisions, Swan said. "We're not in the development business, we don't have any real interest in it. We think that finding ways to preserve the traditional uses is very important.''
Public access to the land will continue as it has traditionally, said Swan.
When the deal between Bowater and McDonald closes in the first quarter of 1999, Swan said there likely will be another investor, who could own 50 percent of the land. "That is not subdivision for the purposes of development, it's subdivision for the purposes of we are getting another solid investment client,'' said Swan. He declined to identify the third party.
Swan said the development rights to some of the land may be sold to ensure it remains undeveloped.
"Within the next five years, I would like to work out a long-term conservation easement with either the state [of Maine] or a conservation organization for a fee, for cash. That is incumbent on the state being able to raise the money for a bond issue,'' said Swan, adding the two conservation organizations could be the Nature Conservancy or the Forest Society of Maine.
Wagner Forest Management Ltd., a 43-year-old company, has an office in Bangor and currently manages about 380,000 acres of land in Maine which is owned by the John Hancock Mutual Life Insurance Co. and was formerly owned by the James River Corp. The lands are located in the Katahdin Iron Works region in Piscataquis County.
"We manage for quality saw-log wood as well as fiber,'' said Swan. "We are not there to just raise fiber. We are there to achieve the highest value and in doing that we are able to provide our investors with superior investment returns.''
Swan said Wagner's stock and trade has been its ability to manage land with a high degree of stewardship.
"We have worked in all the states in close cooperation with the leading conservation organizations in protecting the resource in particular with the traditional uses of the land, public access, managing the land for production of forest products, protecting special places or sensitive land areas. We have in all of the other northeastern states used conservation easements to protect special resources,'' said Wagner's chairman.
The land will be managed intensively, Swan said, with the primary objective of growing quality, higher-value solid wood as opposed to short-rotation pulpwood.
The management company generally steers away from plantations, he said, and prefers to limit clear-cutting and herbicide spraying. But the company does clear-cut when needed, he added, and wants to retain that type of cutting as a tool to be used in certain cases.
Swan said his company's relationship to McDonald parallels the relationship between Seven Islands Land Co. and the Pingree heirs in Maine.
"McDonald is a private family investment company, and they're investing strictly the assets of the family,'' he said. "They're a long-term investor in timberlands. They're looking at long-term investment returns.''
Swan explained that Wagner makes its money both through a flat fee based on the acreage it manages as well as incentives to increase the value of the land. The latter is measured either by appraisals at defined times or when the land is sold, he said.
"We're looking for superior long-term investment performance ... which means the property and the land has to be bought right and it has to be managed well,'' he said. The land usually changes hands after 15 to 25 years, he added.
Although environmentalists remain concerned about the potential for development along the route Thoreau once traveled, most agreed with industry spokespeople about the high quality of Wagner's work in the woods.
"I think they go about doing things well - we'd have heard about it by now if they didn't,'' said John Cashwell, president of Seven Islands Land Co., which manages nearly 1 million acres of Pingree family land in Maine. "In that world, [managing for family investors] the objective is to leave the land better than you found it, and I'm sure they'll go about doing that.''
Sandy Neily of the Maine Audubon Society said she understood that people in Vermont were pleased with Wagner's work there.
Chuck Gadzik, director of the Maine Forest Service, said that the company is "a very competent management group'' and has no record of violations of the state's forestry rules.
And Jym St. Pierre, the Maine director for RESTORE: The North Woods, said Monday's news "may actually turn out to be a blessing.
"This could be the start of the restoration process on these lands,'' he said. "Knowing what I know about Wagner, my guess is that they're going to be managing these lands more sustainably than Bowater was.''
Despite Swan's assurances that the company is interested in sawlogs and not subdivisions, environmentalists in the state remain concerned about the potential for developing the lands along the north end of Moosehead Lake, the upper reaches of the West Branch of the Penobscot or Lobster Lake.
"Maine is one of the few places right now where you can buy timber land at a wholesale price in quantity,'' said St. Pierre of RESTORE. "And so a lot of these institutional investors are looking at this as a relatively low-risk investment. When you're only spending $236 bucks an acre, your risk is not too great. They can always decide to sell off some of the developable shorelands for thousands of dollars an acre.''
Such a sale was the top concern for Pete Didisheim, advocacy director for the Natural Resources Council of Maine.
"Unfortunately this is a sale to a company that Maine people know next to nothing about,'' he said. "Our hope and expectation is that McDonald Investment Co. does manage its lands sustainably and does not sell off prime undeveloped tracts for development. But we may not know for some time, and today's news emphasizes the importance of the state putting together a plan and the necessary funds to be at the table as these huge land sales are happening on a weekly basis.''
Sandy Neily, of Maine Audubon, said the pattern of sales announced this fall represents a worrisome trend toward fragmenting the large tracts of northern forest lands.
As the pieces get smaller, she said, "they're getting into the right size... to be sold for development and conversion out of forest uses. When we lose land as a forest, we also lose it for wildlife habitat. And the state has nothing in place that will guarantee that the forest remains the forest up there.''
News of the sale was upsetting to many people in the one-industry town of Millinocket.
"What is next, the hydroelectric system?'' asked Rodney Daigle of Millinocket, referring to GNP's system of dams that provide power to the mills. Daigle, who is a union vice president along with many other workers, said it appears that Bowater is selling all the parts of its operations in Maine to make as much money as they can.
"When are the politicians going to start worrying about our jobs and the future of these small towns in northern Maine?'' said Daigle. "Trees and land is all they seem to be concerned about. It's time they get concerned about jobs in Millinocket and in East Millinocket.''
Jean Babbidge of Millinocket, a 28-year employee at the mill, said Bowater is using people. "I'm sick and tired of them playing God. They won't tell us anything other than our mill is up for sale.''
Babbidge said people's lives are all messed up. "We have 18 months left before they close down the Millinocket mill and lay off half of the people who work at the East Millinocket mill. Our futures are going down the tubes all because of shareholder value,'' she said.
Copyright © 1998, Bangor Daily News Inc.