Taking care of business

The collapse of Ecusta Paper, a once-profitable business dating back to 1939, isn’t really hard to describe. But trying to discern the underlying truth evokes the image of so many blind men earnestly examining an elephant, laboring to make sense of the pieces while the beast itself remains wholly unexplained. Was this a business failure triggered by NAFTA and the cigarette-liability settlement with the states? Or was it a corporate raid staged by international business tycoon Nathu Puri (who bought the then-profitable plant in 2001)?

Asked about the Ecusta failure, Transylvania County Board of Commissioners Chairman Ray Miller told Xpress, “It is my understanding that the tobacco settlement forced cigarette makers to cut costs, and they switched to cheaper paper.”

Ecusta made fine, flax-based papers; cheaper paper for the U.S. market, generally made from wood pulp, is increasingly manufactured outside this country. Since the inception of the free-trade act in 1993 the United States has lost more than 3,500 jobs in the paper industry, according to the the Economic Policy Institute, a nonprofit, nonpartisan think tank.

Those who maintain that Puri is a corporate raider point out that he appears to have made money while bankrupting a series of companies in the United Kingdom, where the Graphical, Printing and Media Union alleged that he drained employee retirement funds by making low-interest loans to himself. The loans were repaid with shares of two of his other companies, which immediately plummeted in value. A settlement was reached in which Puri was not charged with malfeasance, but he is now legally enjoined by the British Securities and Investments Board from engaging in any business there involving “occupational pension schemes … [which] carry on investment business.”

Ecusta declared bankruptcy last October with debts of $12 million to $14 million; on Feb. 18 Puri’s nephew, Ajay Badhwar — acting on behalf of another company in which Puri is an investor — placed bids totaling $5.4 million for most of the assets.

In 2001, P.H. Glatfelter Company, which had owned (and profitably operated) Ecusta since 1987, sold the Pisgah Forest, N.C., plant to Puri. Puri borrowed $40 million from TransAmerica Business Capital to make the purchase. Included in the deal were subsidiaries in Australia and Canada and a gladiolus farm in Transylvania County. Puri distributed the assets among at least six companies (he still owns the Australian and Canadian divisions):

• RFS Ecusta: the papermaking company that operated the business.

• RFS US: which owned the land, plant and equipment and which bought the intellectual property rights from RFS Ecusta;

• Robert Fletcher & Sons: based in the U.K. (and the source of the RFS in the other company names);

• Ecusta Fibres Ltd.: a Canadian flax-pulp factory;

• Ecusta Australia: a paper-and-printing factory;

• Purico GMBH: a German fine-paper plant.

On the face of it, there’s nothing unusual about this sort of business transaction. Corporations frequently operate through international subsidiaries for various reasons, often having to do with tax laws or liability concerns.

“The companies were set up this way from day one,” RFS Ecusta CFO Steven H. Smith told Xpress. “Such a structure is often utilized by intelligent businessmen.”

But French Broad Riverkeeper Phillip Gibson said the sale of the farm had raised a red flag for managers in Ecusta’s environmental division. Sold by RFS US shortly after the Glatfelter sale, with proceeds divided between the two companies, the farm had originally been purchased for its clay-bearing soil, needed for capping toxic landfills on the Ecusta site. “A company which intended to manage those sites properly would presumably have held onto that resource,” said Gibson.

A year-and-a-half later, following a protracted labor dispute, both RFS Ecusta and RFS US went belly-up. Puri had demanded wage-and-benefit cuts, asserting that the cigarette-paper market was soft and would no longer support the old wage scale. But union employees refused to play ball, and on Aug. 15, 2002, Ecusta locked out the production crew.

The money trail

The devil, of course, is in the details.

The effect of Puri’s breakup of Ecusta was to transfer the assets of the original company to subsidiaries, while saddling RFS Ecusta with debt and liabilities.

For example, the intellectual property rights (i.e., the knowledge of how to manufacture fine papers for cigarettes, legal documents, cigarette-filter tubes, etc.) were sold to RFS US for $100,000. Over the next year-and-a-half, RFS charged Ecusta $900,000 to use the rights.

“Those rights are worth millions,” Ecusta Chief Environmental Officer Mike Cody told Xpress in January. And at the Feb. 18 auction, Puri bid $2.5 million for the same intellectual property.

Smith, however, told Xpress, “The owner did not enhance his wealth by any stretch of anybody’s distorted imagination on this investment, in total or in part.”

Like many large companies, P.H. Glatfelter chose to self-insure its employees. Instead of participating in a public workers’ compensation plan, for instance, it chose to simply cover any claims made by injured employees. Puri bought that liability along with the business. According to papers filed by the N.C. Industrial Commission, however, Puri halted payments to affected employees in October.

Following the closure of RFS Ecusta, Ecusta Fibres Ltd. stopped buying flax from Manitoba farmers, according to press reports there. An RFS Ecusta official, speaking on condition of anonymity, told Xpress: “It’s my understanding that [Puri] broke that out as a separate company too and removed cash. That’s where you need to look; that’s what I’ve been told.”

Ecusta Fibres laid off all but two of 100 employees pending the possible resumption of operations in WNC, now deemed unlikely.

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About Cecil Bothwell
A writer for Mountain Xpress since three years before there WAS an MX--back in the days of GreenLine. Former managing editor of the paper, founding editor of the Warren Wilson College environmental journal, Heartstone, member of the national editorial board of the Association of Alternative Newsweeklies, publisher of Brave Ulysses Books, radio host of "Blows Against the Empire" on WPVM-LP 103.5 FM, co-author of the best selling guide Finding your way in Asheville. Lives with three cats, macs and cacti. His other car is a canoe. Paints, plays music and for the past five years has been researching and soon to publish a critical biography--Billy Graham: Prince of War:

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