By Don McIntosh
Northwest paper mill workers, by now used to painful disappointments, got another one in November: Federal anti-monopoly regulators stood aside and allowed the nation’s second largest paper producer to gobble up the nation’s fifth largest paper producer. The $3.5 billion acquisition of Chicago-headquartered KapStone by Atlanta-headquartered WestRock is the latest in a decade-long spree of mergers and acquisitions that have reduced competition and restricted supply in the U.S. paper and cardboard packaging industries — and led to a wave of job-killing mill closures.
“WestRock has set a pattern: Buy competitors, close mills, reduce supply, and drive the price up,” says Greg Pallesen, president of the Association of Western Pulp and Paper Workers (AWPPW). Headquartered in Portland, AWPPW represents workers at pulp and paper mills in Oregon, Washington, Idaho, California and Virginia. Since 2000, AWPPW has lost over 6,400 members and suffered the closure of at least 15 mills. Today it counts just 4,300 members.
Pallesen says there’s no better example of WestRock’s buy-it-and-shut-it-down strategy than the 2015 closure of a paper mill in Newberg, Oregon, that had been in operation for 120 years. Before it was closed, the Newberg mill had been turning as much as 330,000 tons of recycled paper a year into newsprint and light-weight containerboard, which is used in making corrugated cardboard boxes.
On Oct. 2, 2015, WestRock finalized a $288.5 million acquisition of SP Fiber Holdings, the company that owned the Newberg mill and a paper mill in Dublin, Georgia. Two weeks later, WestRock announced the “indefinite” closure of the Newberg mill. About 200 people, most of them AWPPW members, lost their jobs — even though the market for cardboard has been growing steadily thanks to the increase of online shopping.
Pallesen had a hunch the closure was intended to reduce supply in the market, but had no proof. Union members and supporters protested the closure with pickets outside the mill, but the company didn’t budge, and the mill stayed shut.
Then on Jan. 29, 2018, WestRock announced plans to buy KapStone, which employs AWPPW members at its paper mill in Longview, Washington. The announcement rekindled Pallesen’s hopes for the restart of the Newberg paper mill, because the acquisition would require federal approval. A series of federal statutes known as “antitrust” laws are supposed to prevent companies from becoming monopolies or otherwise manipulating markets or restricting competition. Because of those laws, the government in the past has required merging paper companies to divest some of their holdings to preserve competition in the marketplace. Surely they’d do that this time as well, Pallesen thought. Maybe the government would order WestRock to sell the Newberg mill to someone who’d reopen it and put AWPPW members back to work. Or if not, at least some of KapStone’s mills might be kept out of the clutches of a company with a record of closing mills.
Then (he won’t say how) Pallesen came into possession of a secret company document: a Jan. 9, 2018, sales agreement between WestRock and KBD Enterprises, an industrial scrap business. WestRock, having paid nearly $300 million to acquire two paper mills, now proposed to sell one of them for just $8.25 million … with some highly unusual conditions: The buyer would have to destroy the plant’s valuable machines, and promise not to sell them intact or use them to manufacture paper.
That seemed to Pallesen like “smoking gun” evidence of an intent to destroy productive capacity and reduce supply in the market. He got in touch with Edgar Sargent, a Seattle commercial attorney who previously represented the Bakers union during the Hostess bankruptcy and successfully defended Seattle’s minimum wage ordinance. At AWPPW’s request, Sargent presented the leaked sales agreement and other evidence alongside a letter to the Antitrust Division of the U.S. Department of Justice, calling on them to investigate.
“The union believes that this merger poses serious threats to full and fair competition in the market,” Sargent wrote in the May 8 letter. “Our general concern is that WestRock will use its increasing share of the cardboard and container markets to increase profits by artificially constricting production.… It is difficult to imagine any justification for WestRock’s plan to destroy the Newberg mill other than an attempt to foreclose competition with WestRock’s cardboard operations.”
In June, WestRock told the Portland Tribune newspaper the planned sale to the scrapper had fallen through. But the evidence of the sales agreement spoke for itself, and U.S. Senator Ron Wyden decided to weigh in. In a July 24 letter to the U.S. Department of Justice and the Federal Trade Commission, Wyden called on them to investigate the report that WestRock had ordered the mill equipment destroyed.
“Such a provision, which was first identified by the Association of Western Pulp and Paper Workers, appears on its face to be highly anticompetitive,” Wyden wrote.“By limiting the number of domestic buyers of recyclable materials, WestRock may be effectively controlling prices that curbside and sorting facilities receive for their services, and at the same time increasing the cost of paper for consumers.”
In an Aug. 29 reply, the Department of Justice thanked Wyden for his interest. “The Department is strongly committed to protecting and promoting competition in the paper industry through enforcement of the federal antitrust laws,” wrote assistant U.S. attorney general Stephen Boyd.
WestRock declined to comment for this story, but has said repeatedly that it’s continually assessing what to do with the Newberg mill.
“That’s a line of bullshit, in my opinion,” Pallesen told the Labor Press. “They’re a multibillion corporation. They know exactly what they’re doing. They don’t want competition.”
Pallesen said he’s heard from at least two potential buyers who’d be willing to reopen the mill, but WestRock has been unwilling to talk with them, he said.
As a result, the Newberg recycled paper mill remains idle, all while Oregonians pay top dollar to collect recycled paper curbside — and have it sent to landfills because there’s no facility to take it.
WestRock picked up four more paper mills with the completion of its KapStone purchase, including the AWPPW-represented mill in Longview. Because it’s a large enough capital investment, Pallesen thinks the Longview mill is safe from closure for now. But if the company’s strategy is indeed about limiting production, other mills might be at risk.
“We certainly expect around 12 months from now, maybe 18 months, you’ll see mill closures,” Pallesen said.
MARCH TO MONOPOLY?
- 2011: Rock-Tenn buys Smurfit-Stone
- 2015: Rock-Tenn merges with MeadWestvaco to form WestRock
- 2015: WestRock buys SP Fiber Holdings
- 2016: WestRock buys Cenveo Packaging
- 2017: WestRock buys Silgan Holdings
- 2017: WestRock buys MPS
- 2017: WestRock buys U.S. Corrugated
- 2017: WestRock buys Island Container
- 2017: WestRock buys HannahPak
- 2018: WestRock buys Plymouth Packaging
- 2018: WestRock buys KapStone
PAPER TRAIL OF DESTRUCTION
Below is a list of paper mills closed since 1998, just in Oregon in Washington, and in one union (AWPPW). It doesn’t include partial closures, like the Georgia-Pacific mill in Camas Washington where all but one paper machine have been shut down.
- Albany (International Paper)2009
- Gardiner (International Paper)2005
- Newberg (WestRock) 2015
- Oregon City (Blue Heron) 2011
- North Bend (Weyerhaeuser)2003
- Bellingham (Georgia-Pacific ) 2007
- Cosmopolis (Weyerhaeuser) 2006
- Everett (Kimberly Clark) 2012
- Hoquiam (Grays Harbor Paper) 2011
- Longview (Weyerhaeuser) 2001
- Steilacoom (Abitibi) 2000