Wausau Paper to Sell Brainerd Mill, at Odds With Investor
Wausau Paper Corporation is looking to sell its paper mill in Brainerd as part of its plans to divest its specialty paper business, but its largest shareholder—activist investor Starboard LP—is unhappy that the decision to sell the division was announced “hastily” and just hours after Starboard accused Wausau Paper’s board of failing to pursue a similar sale and thus nominated three new independent board members for election.
Wausau Paper announced late Friday that it plans to identify “strategic alternatives” for its “technical specialty” paper division—which makes paper used in masking tape, food packaging, and office supplies, among other things—in order to focus solely on making tissues and paper towels. Company spokesman Perry Grueber on Monday confirmed that the company is looking to sell its specialty paper business, including its mills in Brainerd, Mosinee, and Rhinelander, Wisconsin.
But New York-based Starboard, which owns a 14.8 percent stake in Wausau Paper, on Monday questioned the “sincerity” of the company’s announcement, describing it as “reactive” and one made in “bad faith.”
Starboard said that on Friday morning, it delivered an open letter to the Wausau Paper board, nominating Starboard CEO Jeff Smith and two other people for election as independent directors at the company’s 2013 annual meeting. Starboard said the new directors would help Wausau Paper become more profitable, and that Wausau Paper’s current board had ignored its “repeated advice to explore strategic alternatives” for its technical specialty business and the company as a whole.
After receiving the letter, Wausau Paper Chairman Tom Howatt requested that Starboard delay public disclosure of the nominations, Starboard said, leading it to believe that the board needed more time to consider moving towards an “acceptable settlement” with the firm.
“Instead, at 5 p.m. on Friday evening, Wausau issued its own press release stating that it would narrow its focus to its tissue business and that a sale process is underway for its technical paper business,” Starboard said in its statement.
The fact that the Wausau Paper board “is willing to take action only when under immediate pressure is highly concerning and calls into question the sincerity of the announcement on Friday,” Starboard said. As a result, the board “is urgently in need of new independent directors, including a direct shareholder representative.”
Starboard said that Wausau Paper needs to consider a wider variety of “strategic alternatives,” including selling the entire company, or moving the company’s headquarters if it focuses solely on the tissue business.
Grueber told Twin Cities Business in a Monday e-mail that he disagreed with Starboard’s accusation that Friday’s announcement was made hastily, and said that the company’s decision to look for potential buyers still stands. The Brainerd mill employs about 171 people, and Grueber declined to comment on how they would be affected by the potential sale. The company said Friday that for the past year, it has been evaluating “alternatives” to the business, but that it cannot yet comment on when a sale will occur.
According to a Milwaukee Journal Sentinel report, Wausau’s seven-member board already includes two directors that were appointed by Starboard, and adding three more Starboard-appointed directors would tip the board’s control to the firm.
A Tuesday morning call to Starboard to determine its next course of action was not immediately returned.
In 2011, Wausau Paper invested $27 million at its Brainerd mill to convert the mill from producing printing and writing papers to making technical specialty products, according to a report in the Brainerd Dispatch. In November, the company reportedly laid off 55 employees at the mill as part of the company’s exit from the printing paper business.
Starboard is a familiar name in the Twin Cities as it is also an investor in Edina-based hair salon operator Regis Corporation. The two parties were in a contentious proxy battle that ended in October 2011, when Starboard won three board seats. The proxy battle occurred after Regis outlined a planned $40 million to $50 million expense reduction over the next two fiscal years—but Starboard said the plans were insufficient and fought for control on the board.