Aditya Birla Group set for latest Canadian buy

Aditya Birla Group has beaten back a legal challenge from a Chinese company, with a court in the Canadian province of Ontario approving the former’s plans to acquire an idled pulp mill. The Superior Court of Justice here approved the transaction on Thursday. The Indian company will pay $27 million to purchase the assets of Terrace Bay Pulp Mill in northwestern Ontario.

The deal had faced a last-minute hurdle earlier this week, with a Chinese company filing an affidavit in court demanding an auction to consider its bid. Tangshan Sanyou Group claimed it had made a cash offer of $35 mn, higher than that of the Birla Group.

However, Ernst and Young, the bankruptcy trustee overseeing the sale of Terrace Bay Pulp as part of a court-monitored process, informed that Tangshan had not made its bid within the deadline to do so. E&Y’s senior vice-president, Alex Morrison, also told the court Birla Group had already spent over $3 mn to complete the transaction and would “terminate its interest” in Terrace Bay if the sales process and terms were changed now. The purchase agreement also required the transaction to close before July 31.

Also on Thursday, members of the United Steelworkers labour union approved a memorandum of understanding signed with the Aditya Birla Group, a condition that needed to be fulfilled before July 24 for the deal to close. The union’s spokesman, Herbert Daniher, told Business Standard the five-year agreement would provide greater flexibility in several areas, to create efficiency at the mill and minimise periods of shutdown. The workers had agreed to a three-year freeze on wages and a 1-1.5 per cent raise in the fourth and fifth years.

Daniher said the workers were optimistic about the mill’s acquisition by the Aditya Birla Group. “We’ve been under financial duress for five to six years at this mill,” he said. “This is a different type of company, with a proven track record, vertical integration and assured market share. We saw this as a monumental opportunity,” he added.

The Ontario government has forgiven an existing debt of $25 mn previously owed by Terrace Bay Pulp, treating it as an excluded liability. E&Y’s Morrison told Business Standard the Aditya Birla Group had asked for the loan to be forgiven as part of its acquisition offer.

The Group has committed to investing $250 mn in the mill, which the Ontario government says will support a little over 1,900 direct and indirect jobs. The mill is expected to reopen in October. Initially, it will continue to produce paper grade pulp, but is to ultimately be converted to a dissolving grade pulp mill to supply the Group’s viscose staple fibre business. The conversion process is likely to take a little over three years.

According to an E&Y report to the court, the factors that favoured the Indian bid included the belief that a “large well-capitalised multinational organisation making a large investment in northern Ontario” would “significantly improve the financial strength and long-term viability of the mill”. It also noted: “The output of dissolving pulp will be used by Birla in its textile mills globally, which will provide a much more secure and stable market for the mill’s output, compared to the past.”

Ontario has been vocal about its support for mill’s revival. The provincial minister of natural resources, Michael Gravelle, said, “We have worked closely with Ernst and Young and the Aditya Birla Group over the past several months to ensure we build a strong foundation that will support a sustainable future for the mill, the community and the region. This heralds a new start for the Terrace Bay mill, one that promises to bring hundreds of jobs back to the region.”

Terrace Bay is a small town of about 1,700 residents, located on the shores of Lake Superior in northwestern Ontario. “We are a small community. Some of our families have worked at the mill for two or three generations. It was important for us that the mill was reopened,” said Daniher.

With the Chinese challenge out of the way, a green signal from the court and the workers’ nod in hand, the stage seems set for the Aditya Birla Group to add to its already significant presence in Canada. The Group has 6,000 workers in the country, in operations spanning various sectors, including pulp and fibre mills, metals, information technology and chemicals.