MacMillan Bloedel Limited

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MacMillan Bloedel Limited

925 West Georgia Street
Vancouver, British Columbia V6C 3L2
Canada
(604) 661-8000
Fax: (604) 687-5345

Public Company
Incorporated: 1911 as the Powell River Company Ltd.
Employees: 15,036
Sales: C$3.00 billion (US$2.59 billion)
Stock Exchanges: Toronto Montreal Vancouver NASDAQ

MacMillan Bloedel Limited is engaged in the production of forest products. It is an integrated company, with operations in its native Canada, the United States, the United Kingdom, and Europe. It manufactures lumber and diverse lumber products, including building materials, pulp, newsprint, specialty papers, and packaging. Its products are marketed in approximately 40 countries.

MacMillan Bloedel is one of North America’s largest forest products firms. In the opinion of the company, its value-added products, such as telephone directories using newsprint; the range of its marketing network; and emphasis on research and development set it apart from its competitors. Operations are decentralized, with five main units: the Nanaimo, Alberni, and Powell River regions, each headquartered in British Columbia; and the containerboard and packaging groups, based in Montgomery, Alabama.

In 1901 Dwight Brooks, a physician before entering his family’s lumber business, and salesman Michael J. Scanlon formed the Brooks-Scanlon Lumber Company in Minnesota in the United States, with Brooks as president and Scanlon as vice president. Brooks-Scanlon invested heavily in British Columbia, in Canada, buying tracts of forest. In the early 1900s the company moved to British Columbia, where logging had been under way for several decades. In 1908 Brooks-Scanlon abandoned plans to build two new sawmills and instead used the capital to merge John O’Brien’s company, becoming Brooks, Scanlon & O’Brien, which entered the newsprint business in 1909, after acquiring land and water rights on the Powell River. The mill was incorporated as the Powell River Paper Company Limited. Complications with mill construction led to the reorganization of the subsidiary in 1911 as the Powell River Company Ltd. Its first newsprint was produced the following year.

Wisconsin native Julius Harold (J.H.) Bloedel attended the University of Michigan in civil engineering in the 1880s but left before graduation because of a lack of money and a desire to start a career. Bloedel worked first for the Wisconsin railway then in real estate before moving west, where he became a partner in the 1890s in two different logging ventures in the state of Washington.

From humble beginnings in Ontario, Harvey Reginald (H.R.) MacMillan early in life became engrossed in forestry as a result of mentoring efforts by a teacher at the Ontario Agricultural College and a 9c-per-hour job on its experimental forestry plot. He graduated in 1906. In 1907 MacMillan was favorably impressed by his first look at British Columbia, while scouting timber for a group of Ontario businessmen. In 1912 he became the first chief forester of British Columbia.

In 1911, while managing the Larson Lumber Company, Bloedel heard about an anticipated Canada-U.S. reciprocity treaty to lift tariffs on lumber and other products and decided to expand his logging operations into British Columbia to control the effects of such a treaty. That same year Bloedel united with railway contractors Patrick Welch and John W. Stewart when J.J. Donovan, Bloedel’s surviving partner, declined to join the Canadian venture. Bloedel, Stewart & Welch (B, S & W) was then incorporated in British Columbia, with Bloedel owning half. Stewart and Welch remained silent partners who provided critical access to the railway market. Bloedel was mistaken about the tariffs, which were lifted only on pulp and newsprint, two products that did not interest him at the time.

World War I hurt an already ailing lumber industry, and in 1914 exportation was nearly impossible because of a shortage of non-military shipping. B, S & W managed to keep open its logging camps at Myrtle Point during most of the war; not all firms were so fortunate. When servicemen returned home in search of work, only two-thirds of the mills in the province were operating. Powell River Company ultimately enjoyed a boom market and rising prices as a result of World War I.

During World War I MacMillan was tapped by the Canadian government to find world markets for Canadian lumber. He reported back to the government his dismay that nearly everywhere he traveled, lumber, including that from British Columbia, was sold through U.S. firms. MacMillan’s efforts, however, were not in vain; Canadian exports to Great Britain improved during the last two years of the war. This government job, which MacMillan later termed one of the great opportunities of his life, ended in 1916.

In 1919 MacMillan shook hands with British lumber importer Montague Meyer on a deal that created the first privately owned lumber export brokerage in British Columbia. MacMillan insisted on an equal partnership, mortgaging his house to match $10,000 from Meyer. The H.R. MacMillan Export Company was incorporated in 1919. As president, MacMillan ran the firm for a year before hiring fellow professional forester Whitford Julien VanDusen as manager. By the end of the 1920s Meyer had sold out to MacMillan.

In 1924 B, S & W became a manufacturer, unintentionally, following the failure of the Shull Lumber & Shingle Company, which owed B, S & W money. B, S & W, Shull’s main creditor, bought the Shull mill. B, S & W, however, still focused on logging and buying timber. Prentice Bloedel, the elder son of J.H. Bloedel, joined the firm in 1929, a bumper year is sales. A former teacher, he had worked briefly as a logging laborer. In 1930 Bloedel, Stewart & Welch, like other firms, got caught in the Great Depression, experienced decline, and the following year lost money.

Dwight Brooks died in 1930, and within a year, so did Michael Scanlon. In 1930 the Great Depression was seriously affecting the newsprint and pulp markets, but Powell River maintained production, although to a reduced extent throughout those years when other mills closed.

In 1935 B, S & W joined Seaboard Lumber Sales, a subsidiary of the Associated Timber Exporters of British Columbia Limited, (Astexo), a cooperative, and the main competitor of the H.R. MacMillan Export Company. When Astexo, representing about 30 firms, formed Seaboard, it stopped allowing MacMillan to market its British Columbia lumber supplies, forcing MacMillan into a major mill operation and the purchase of timberland. The firm not only survived but expanded, handling logging, sawmilling, plywood and door manufacturing, railway-tie production; and shipping and sales. The H.R. MacMillan Export Company was a pioneer in vertical integration; it purchased firms involved in all parts of the lumber trade.

Powell River was one of a group of pulp and paper companies, along with several of their company officers, that were indicted in 1939 by a grand jury in San Francisco, California, alleging conspiracy to fix prices. Harold Foley, executive vice president at Powell River, was among those who pleaded no contest and subsequently paid fines.

World War II brought tight shipping and a shortage of labor but also growth. British Columbia’s forest industry was smashing production records by the end of 1940. Powell River expanded its sulfite pulp mill to produce market pulp for export when pulp supplies from Scandinavia were cut off. At the end of the war, when it became a public corporation, Powell River was in good financial shape.

In 1942 J.H. Bloedel became chairman, and Prentice Bloedel president and treasurer of B, S & W, which went public in 1948. Serious reforestation efforts began after World War II with B, S & W in the forefront of that endeavor. It handled 70% of all reforestation in the province by private industry— planting two million trees—by the late 1940s. Timber had held little value in the early days of the industry; farmers had burned forests by the hundreds of acres.

During World War II the H.R. MacMillan Export Company’s most important acquisitions were timberlands. That firm went public in 1945. In 1948 MacMillan became chairman and VanDusen, vice chairman.

J.H. Bloedel had received a number of buyout offers over time, but MacMillan had not been among the suitors. Convinced that smaller firms had no future, Prentice Bloedel approached MacMillan in 1950 about a merger. MacMillan recommended such a merger to a skeptical VanDusen, arguing it would enable the new firm to find capital to keep the British Columbia forest industry on a competitive footing with its counterparts in the United States and elsewhere. Of the pair, MacMillan had a larger marketing operation, and Bloedel had more timberland. The merger would result in British Columbia’s largest lumber and pulp operation.

Not only money was at stake. As Donald MacKay wrote in Empire of Wood, Prentice Bloedel recalled his father’s reaction: “It really hurt his pride very much. He was dynastically minded as many people were who were self-made in that generation, and here we were selling out to our arch-enemy.” J.H. Bloedel knew his firm would take a back seat to MacMillan as a wholly owned subsidiary.

J.H. Bloedel, the surviving partner of Bloedel, Stewart & Welch, signed the merger documents establishing MacMillan & Bloedel Limited in October 1951 as his last act before retiring. To clear the way for amalgamation, the merged firm paid C$2.3 million in taxes to Canada because of C$16 million in B, S & W income that had gone undistributed for years.

In 1956, at age 74, MacMillan resigned as chairman and was replaced by B.M. Hoffmeister. Tension between them led MacMillan to request his resignation as 1957, a hard year, ended. Also in 1957 J.H. Bloedel died at age 93.

John Valentine Clyne, a justice of the British Columbia Supreme Court, became chairman of MacMillan & Bloedel in January 1958. Then 56, Clyne had little experience in business or knowledge of the forest-products industry but had established a reputation in marine law in his native Vancouver. As chairman, he faced challenges: poor timber sales, labor troubles in the pulp and paper area, and U.S. tax and tariff policies.

Powell River’s best year in production, sales, and earnings, was 1950. In 1955 Harold Foley became chairman and his brother, Milton Joseph (Joe) Foley, president. With competition hurting the sales of newsprint, which comprised 75% of revenues, and growing production costs, Powell River considered five mergers. All were rejected. In 1957 MacMillan & Bloedel’s first newsprint machine made a better product than did Powell River, one of Canada’s largest newsprint makers and owner of the world’s largest newsprint mill. In 1957 Powell River decided against a merger with MacMillan & Bloedel, but the following year sold the firm half interest in a paper-products company.

Serious talks about a merger began in 1959. Harold Foley was told MacMillan & Bloedel would be the main partner of the new firm, with Clyne as chairman. MacMillan, Bloedel and Powell River Limited, the largest forest products company in Canada, was established in January 1960. The union of two different management styles—MacMillan & Bloedel’s tight organization and efficiency with Powell River’s more relaxed paternalistic management—turned ugly. By 1962, as a result of what was reported to be one of the nastiest corporate fights in Canadian history, most of the senior Powell River people had resigned or had been eased out. President Joe Foley quit in April 1961 complaining of exclusion from any meaningful participation, and vice chairman Harold Foley followed in May.

High taxes, the political climate in British Columbia, and high labor costs were among the reasons behind Clyne’s drive to expand MacMillan, Bloedel and Powell River from a regional firm into a global entity. With its emphasis on solid-wood products, the firm experienced significant growth in pulp and paper manufacturing during the 1960s, becoming an international corporation with production in Europe, the United States, and Asia. MacMillan, however, viewed foreign countries as markets not production centers. In the company’s first successful step into international investment and its initial expansion of manufacturing facilities outside Canada, it bought container plants in Great Britain for C$36 million in 1963. The next year a minority interest in the Royal Dutch Paper Company (KNP) was acquired. In 1966 the company name became MacMillan Bloedel Limited (MB).

Joining with the United Fruit Company, the company built a linerboard plant near Pine Hill, Alabama, completed in 1968, later becoming full owner. Later in 1968 MB adopted a policy to move from its traditional operation in wood products, pulp, and paper, and diversify into other businesses. It would look at firms related to the forest products industry but with a lesser priority on those outside the industry.

In 1970 MacMillan and VanDusen resigned from the board. In 1972 Prentice Bloedel, 71 years old, was the final owner-manager to leave the board. He is remembered as building British Columbia’s first fully integrated sawmill and pulp unit, designed to obtain maximum use of each piece of timber, and as having developed the hydraulic ring barker, a key step in the processing of logs.

In 1973 Clyne, whose departure, like MacMillan’s, was in stages, resigned as chairman. That year sales hit $1 billion. Robert Bonner, president and chief executive officer, replaced Clyne, and Bonner’s positions were filled by Denis Timmis. Bonner and Timmis took joint command. A struggle between them, however, led to Bonner’s resignation in 1974, and George Currie, executive vice president for finance, became chairman.

One of MacMillan Bloedel’s efforts at diversification was the establishment in 1974 of a ventures group to seek small entrepreneurial companies with a potential for growth. The catalyst for an ensuing disaster was the expansion in 1973 of the Canadian Transport Company (CTCO), founded by the H.R. MacMillan Export Company in 1924, to carry its forest products into a general shipping line that competed for cargo with other global carriers. In spring 1974 CTCO was making a significant profit, but March 1975 was the worst shipping market since 1940. CTCO’s fleet exceeded its needs. It was to take delivery on yet several more vessels, and it was losing money on many of its other chartered ships. Months later the chartering of ships was ordered stopped, and several CTCO officials were fired. Timmis cut operating and administrative expenses, including executive salaries. For 1975 MacMillan Bloedel suffered an C$18.8 million after-tax loss—its first ever—on sales of C$1.2 billion. The success of pulp and paper sales prevented a worse loss.

In February 1976 H.R. MacMillan died at his home in British Columbia at age 91. MacMillan was credited with establishing the British Columbia forest products industry.

Timmis had tried to lessen MacMillan Bloedel’s dependence on the boom and bust cycles of wood products through diversification. His downfall was shipping. Timmis and Currie were asked to leave in 1976. Months earlier Timmis had twice offered his resignation, that in each case had not been accepted. In March 1976 J. Ernest Richardson retired from the British Columbia Telephone Company, where he had been chairman and CEO since 1971, to accept the positions of chairman and acting president of MacMillan Bloedel. He had been a director at MB since 1967.

C. Calvert Knudsen, and attorney and specialist in maritime law and a senior vice president at Weyerhaeuser Company in Washington state, became CEO at MacMillan Bloedel in September 1976. His appointment reflected the board’s zeal to return the firm to basics—the manufacturing and marketing of forest products. Despite limited success in its bid to become a multinational organization, MacMillan Bloedel was back in the black by October 1976 as market conditions improved. The venture group investments, many of which had lost money, began to be divested. In 1977 the company started a program of replacing and modernizing facilities in British Columbia.

Efforts to rally productivity while cutting costs in existing operations led MacMillan Bloedel to again look at acquisitions. In 1981, in an attempt to acquire Domtar, it became the object of takeover bids itself by Domtar and Canadian Pacific. Following intervention by Canadian premier William Bennett, who did not want MacMillan Bloedel to lose its provincial identity, Domtar and MacMillan Bloedel canceled their respective takeover efforts. Canadian Pacific pressed on, but with opposition from MacMillan Bloedel, backed off. MacMillan Bloedel was free for the time being, but the door to takeover had been opened.

In 1979 earnings were very good, in part because of full production and strong markets. MacMillan Bloedel employed 24,500—its largest staff to date. In 1980 Knudsen became both chairman and CEO. Also in 1980 the British Columbia Resources Investment Corporation (BCRIC) hired away MacMillan Bloedel’s president, Bruce Howe, to become its president. He was replaced by Raymond V. Smith, senior vice president.

In 1981 MacMillan Bloedel again faced takeover on two fronts. Knudsen opposed a takeover bid from BCRIC but negotiated the transfer of a BCRIC subsidiary to MacMillan Bloedel for company shares. Premier Bennett rejected the plan. Also in 1991 Noranda Mines of Toronto sought to increase its shares of MacMillan Bloedel stock to 49%. Moves and countermoves included an offer by Noranda to limit its presence on the MacMillan Bloedel board to less than might normally be expected, which satisfied the government. Noranda hiked its bid and included an all-cash option, which MacMillan Bloedel’s board recommended for acceptance, and soon after BCRIC withdrew its bid. When Noranda increased its ownership to 49%, five of its executives joined the MacMillan Bloedel board including executive vice president Adam H. Zimmerman, who became vice chairman of MB when Richardson retired. In a few months, Brascade Resources of Toronto, owned by the Bronfmans of Montreal, acquired 42% of Noranda.

The 1981 recession in the industry, especially lumber, was the worst since the 1930s. MacMillan Bloedel’s loss for 1981 was C$26.7 million on sales of C$2.2 billion. In 1982 it suffered its worst year ever, losing about C$57 million on sales of C$1.8 billion. Fighting to survive, the firm downsized by perhaps half during a three-year period starting in 1981. Measures included decreasing capital spending for everything except for safety; reductions in salaries, dividends, and staff; temporary mill closures; and permanent closures or sale of manufacturing plants, subsidiaries, and joint ventures. The company jet was sold as was the firm’s 26-story tower in Vancouver. As many as 40,000 industry workers, nearly 20% of whom were MacMillan Bloedel employees, were laid off in British Columbia in late 1981 and in 1982. The decade also saw two industry-wide strikes and one lockout.

Despite Noranda’s wish that he stay, Knudsen returned to Washington in 1983, largely for tax reasons, but he remained in the position of vice chairman. He was replaced by Zimmerman, who also retained a title at Noranda. In 1985 MacMillan Bloedel was still talking survival. In 1987 it enjoyed sales of about C$3.1 billion, and earnings nearly doubled. Its best year was 1988, with sales of nearly C$3.3 billion, because of good markets and prices, and its highest earnings ever. Sales rose slightly in 1989, with about 80% of the total in the international arena; nearly half of the exports went to the United States, lumber accounting for the largest share. A general economic slump in 1990 affected the industry, with declining prices and markets in all product lines, and MacMillan Bloedel plants were operating at less than capacity.

In the early 1990s MacMillan Bloedel’s efforts to gain global markets included a lumber distribution business in Japan, where MacMillan Bloedel Building Materials accounted for more than 25 % of the total value of lumber that the parent company sold worldwide. Japanese major trading houses do not easily render business to foreign competitors, but MacMillan Bloedel#x2019;s history of service there began with the Great Kanto Earthquake of 1923, when the firm supplied much-needed lumber.

MacMillan Bloedel#x2019;s biggest challenge of the decade was to meet environmental demands, complying with new pollution standards and land preservation issues. New government regulations regarding pulp and paper operations formulated after dioxins were found in pulp and water effluent caused MacMillan Bloedel to commit C$75 million in 1989 to virtually eliminate these unwanted by-products from its Harmac and Powell River mills. Smith said in March 1989 that the industry in British Columbia faced up to C$1.5 billion in capital investment into the early 1990s to meet new environmental regulations, and potential costs of C$3 billion to conform to standards being proposed or being developed.

MacMillan Bloedel was also concerned about a shrinking land base. British Columbia is Canada’s main timber producer, with about 28% of the province available for forestry. It contains most of the 3.95 million acres of timber that MacMillan Bloedel manages, most of which is owned by the provincial government. In 1988 the government reduced the annual allowable cut in the province by 5 %, pointing to pressures on the ability of the forest to support the present level of harvest. For its part in reforestation, MacMillan Bloedel annually planted seven million seedlings on 46% of the land it harvests, supervising natural regeneration on the rest. By 1991 it had planted 200 million seedlings.

Principal Subsidiaries

Canadian Transport Company (International) Ltd.; Island Paper Mills Ltd. (50%); MacMillan Bathurst Inc. (50%); MacMillan Smurfit SCA Ltd. (U.K. 50%); Koninklijke Nederlandse Papierfabrieken N.V. (the Netherlands, 40%).