AbitibiBowater, Inc. (fka ABWTQ)

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AbitibiBowater Can Reject Woodbridge Deal, Judge Says (Update2)
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By Michael Bathon

Oct. 28 (Bloomberg) -- AbitibiBowater Inc., the world’s biggest newsprint maker by capacity, won court approval to reject an agreement that might have required it to buy Woodbridge Co.’s share of a partnership or have its stake sold.

U.S. Bankruptcy Judge Kevin Carey ruled that the so-called call agreement with Woodbridge was “disadvantageous” to AbitibiBowater and can be canceled, according to court documents filed yesterday in Wilmington, Delaware.

The agreement might have forced the Montreal-based company to buy Woodbridge’s interest in a joint venture called Augusta Newsprint Co. at an undisclosed price, or allowed Woodbridge to sell the entire venture if AbitibiBowater didn’t exercise the option, according to court documents.

AbitibiBowater units created Augusta Newsprint with units of Thomson Reuters Corp. in 1981 to buy a plant to manufacture newsprint, court papers show. Thomson had no use for its stake in the partnership after disposing of its newspaper operations in Canada in 2000 and 2001.

Toronto-based Woodbridge, Thomson’s largest shareholder, bought the company’s 50 percent interest in the partnership for $190 million in September 2001, according to court documents. AbitibiBowater entered into the call agreement with Woodbridge the same day.

No Proceeds

Under the agreement, if the partnership was sold, Woodbridge would receive an amount in excess of what AbitibiBowater would have paid for Augusta Newsprint. Currently, “the option price is substantially higher than the value” of Augusta Newsprint, and AbitibiBowater “would be likely to receive no proceeds” from a sale, the company said.

Woodbridge maintained that the partnership and call agreement were one, and AbitibiBowater couldn’t reject the call agreement alone. The agreements “were intended to be part of a single bargain between the same parties, executed on the same day, in one transaction,” Woodbridge lawyers said in court papers.

Carey disagreed in his opinion, writing that the facts “lead me to conclude that the parties intended to, and did, make separate agreements.” AbitibiBowater is “free to move for the rejection of the call agreement,” Carey said.

AbitibiBowater has 24 pulp and paper mills and 30 wood- products plants in the U.S., Canada, the U.K. and South Korea. The company, which employs about 15,900 workers, was formed in October 2007 with the merger of Abitibi-Consolidated Inc. and Bowater Inc. in a stock transaction valued at about $4.8 billion.

AbitibiBowater and 31 units sought bankruptcy protection April 16 after U.S. lenders refused to accept a proposed debt restructuring. The company listed assets of $9.9 billion and debt of $8.78 billion as of Sept. 30 in its Chapter 11 petition.

The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at [e-mail].

Last Updated: October 28, 2009 14:42 EDT