July 30th 2008

By Terence Chea, Associated Press

San Francisco Chronicle

July 30, 2008

A company owned by the founders of Gap Inc. took control of the bankrupt Pacific Lumber Co. on Wednesday, marking a new chapter in the history of one of the country's oldest and most controversial timber firms.

Pacific Lumber's logging practices over the past two decades under Houston-based Maxxam Inc. have drawn widespread opposition from environmentalists. Among them was Julia Butterfly Hill, who spent two years sitting in a redwood named "Luna" to protest the destruction of old-growth forests on California's North Coast.

The deal was finalized Wednesday after Mendocino Redwood Company LLC paid more than $550 million to creditors to gain control of 210,000 acres of Humboldt County timberlands and a sawmill owned by Pacific Lumber, which filed for bankruptcy protection in January 2007 amid mounting debt and logging restrictions.

Under the new owner, the Scotia-based timber firm's name was changed to Humboldt Redwood Co.

Ukiah-based Mendocino Redwood, which already manages 230,000 acres of timberlands in Mendocino and Sonoma counties, is principally owned by Donald and Doris Fisher, who founded the San Francisco-based clothing chain Gap in 1969.

Mendocino Redwood's plan to reorganize Pacific Lumber -- one of several competing proposals -- was approved by a bankruptcy judge last month and widely supported by state officials and environmentalists.

"It's the right outcome," said Paul Mason, deputy director of Sierra Club California. "The Mendocino Redwood Company has a good track record of working on badly depleted lands. ... Frankly, everyone's tired of fighting over unreasonable logging proposals."

A group of bondholders who favored a different reorganization plan had attempted to block the deal, but a federal appeals court on Tuesday rejected their request to stay the bankruptcy judge's decision.

Humboldt Redwood plans to harvest about 55 million board feet a year from its forests, compared with as much as 250 million board feet a year in the 1990s, said Sandy Dean, chairman of Mendocino Redwood and the newly formed company. The company also aims to apply for certification from the Forest Stewardship Council, which promotes sustainable forestry practices.

"We are going to manage the forest and cut down some trees ... but we'll be doing it in a way that's sustainable -- that balances the health of the forest with the health of the business," Dean said.

The new company plans to offer jobs to 275 to 300 of the 350 workers currently employed by Pacific Lumber, Dean said.

As part of the plan, New York-based Marathon Structured Finance, one of Pacific Lumber's largest creditors, will gain control of the company-owned town of Scotia, which includes stores, hotel, museum, movie theater, recreation center, power plant, two churches and almost 300 homes.

Founded in 1863, Pacific Lumber had been known for its sustainable logging practices and efforts to preserve old-growth forests until it was acquired by Texas financier Charles Hurwitz's Maxxam in 1986.

Under Maxxam's ownership, the company accelerated timber harvest rates in its redwood and Douglas fir forests, prompting a series of environmental protests and lawsuits over its logging operations.

The landmark 1999 Headwaters Forest Agreement ended one of the country's most vicious environmental battles. Pacific Lumber agreed to sell 7,500 acres of old-growth redwood groves to state and federal agencies for $480 million. The deal created the Headwaters Forest Preserve just south of Eureka.

In exchange, Pacific Lumber agreed to logging restrictions on its remaining 210,000 acres of timberlands, but in recent years the company complained that those harvest limits were hurting its ability to survive financially. The company cited the Headwaters agreement as a major factor when it filed for federal bankruptcy protection in Corpus Christi, Texas 18 months ago.