By: Business Vancouver
Chad Wasilenkoff, executive chairman of Fortress Paper Ltd. (TSX:FTP), is one of the more unconventional businessmen you are likely to meet.
The 43-year-old businessman cares little for corporate prestige and takes some pride in being “anti-corporate.”
His company’s head office is in a small, nondescript building sitting on top of a McDonald’s at Lonsdale Quay in North Vancouver.
Wasilenkoff doesn’t have an office or a desk. He doesn’t even have a home in Vancouver anymore. He recently sold it, and his wife and two sons now live in California.
His tastes are of the exotic impulse-buy variety, evidenced by the huge wooden Buddha that greets visitors when they walk through the company’s front doors, and a Chinese motorcycle with sidecar – something he had custom-made based on an 1950s-era bike he saw on a trip to Asia – that sits in a corner with two flat tires, never ridden once.
“I plan to get my motorcycle licence and use it, but I’m too busy,” Wasilenkoff said.
He has a hard time sitting still – his staff think he may have attention deficit disorder – and on the rare occasion when he golfs, it’s not necessarily an exercise in relaxation.
“I go as fast as I can and play for half an hour, 45 minutes,” he said.
As an investor, he’s a contrarian. He is candid about both his successes and his failures, and he knows his limitations, which explains why he just recently fired himself as CEO.
On July 20, Fortress announced that Yvon Pelletier, president of the Fortress Speciality Cellulose mill in Thurso, Quebec, will take over as CEO and Wasilenkoff will assume the title executive chairman.
Now that a three-year triage exercise to save a disastrous investment in Quebec is behind him, Wasilenkoff plans to go back to what he does best: build new companies.
“I’m not going anywhere,” he said. “I’m still the largest shareholder. I still want to be involved and engaged, but I’m spending way too much time dealing with these operational issues.”
Despite its name, Fortress Paper was never intended to be strictly a specialty paper company, but instead was meant to be more of a holding company for a diversified group of companies.
“We’d like to grow it into the next Fairfax or the next Berkshire Hathaway – obviously on a smaller scale,” Wasilenkoff said. “I think it will have multiple industries, whereas right now it’s fairly forestry-focused.”
Born and raised in Calgary, Wasilenkoff is a natural-born entrepreneur. As a child, he collected golf balls and resold them. By the time he was 12, he had earned about $20,000.
When he decided to spend some of his money on a new Atari game console, he was unwilling to pay full price for a new one, so he scoured the Bargain Finder classifieds. He found four used Atari consoles and bought three.
“I basically took them all off the market, so anybody else who would start making calls, all the low-cost ones are gone; the only ones remaining are mine,” he said. “I’d take a nice little spread.”
He then started buying other things that kids his age would buy, such as BMX bikes and skateboards, and later started buying gold, diamonds and artwork.
Wasilenkoff moved to Vancouver after high school to get a degree in urban geography and economics from the University of British Columbia. After graduating, he planned to go into land development but instead became an investment adviser, spending five years with Canaccord Capital.
While still at Canaccord, he started putting together deals on the side, finding companies to invest in, bringing in investors and putting together management teams. He did about a dozen initial public offerings and reverse takeovers.
He was still at Canaccord when the dot-com crash happened in 2000. He lost a lot of money on the tech sector – his own as well as the investments of family and clients.
“When the bubble burst, everything was way overvalued, including the investments I had made,” he said.
He has been a contrarian investor ever since – hunting for bargains in sectors that are out of favour.
When a sector is hot, it’s easy to raise money, Wasilenkoff said, but the assets acquired are overvalued and it’s hard to put good management teams together.
“You’re buying at the top end of a business cycle for that particular business or industry. It’s not a good long-term investment. I’ve always been focused on the long term.”
Wasilenkoff looks for unappreciated or hidden assets – those business divisions within large companies that are being ignored. One of the first sectors he invested in after the dot-com crash was mining. He founded Titan Uranium, which acquired distressed uranium assets at a time when uranium prices were in the $9 per pound range.
At the beginning of 2005, around the same time he was building Titan Uranium, he also started to look at forestry, which at the time was in a prolonged downturn.
“There had been a huge erosion of capital, no investor confidence in that space,” he said.
Fortress Paper was born with the acquisition of Dresden Papier GmbH, a speciality paper producer in Germany, which was sold in 2013.
“We paid about five million euros for it and sold it for 160 million euros seven or eight years later,” Wasilenkoff said.
That profit wasn’t enough to cover the cost overruns on his biggest business blunder, however – the Fortress Specialty Cellulose mill in Thurso, Quebec.
“With the benefit of hindsight, I shouldn’t have done it,” he said of the 2010 purchase and subsequent retooling of the mill. “It’s been the worst investment I’ve made ever in my career in a return perspective.”
At the time, though, all the fundamentals seemed to line up, he said. Because cotton has such a large environmental footprint, he predicted that alternatives, such as viscose (rayon), which is made from dissolving pulp, would be in increasing demand.
Dissolving-pulp prices were down to $750 to $800 per tonne. Wasilenkoff predicted they would go up. He was right, but he was wrong to think that would necessarily be a good thing.
Whereas a new dissolving-pulp mill would cost $1.5 billion to build, there were plenty of idled kraft pulp mills in Canada that could be converted to dissolving pulp for a lot less. He zeroed in on a bankrupt kraft mill in Quebec.
But any retrofit of a kraft pulp mill would require an environmental cleanup – a red flag for investors. So he went straight to the Quebec government to negotiate a deal. If the Quebec government would cover the cost of an environmental cleanup, he would raise the money to do the mill conversion and build a cogeneration plant. That meant he would also need a long-term power purchase agreement from Hydro-Québec.
“We convinced the government that the only way this project would move forward is if the government took on that liability,” he said.
Once he had an agreement from the Quebec government, he was able to buy the mill for $1.2 million and then hired a management team that included an executive who had experience doing pulp mill conversions.
While he was putting the deal together, a cotton shortage caused cotton prices to spike, pulling dissolving-pulp prices up with it.
“It went from $800 [per tonne] to $2,750,” Wasilenkoff said. “Normally, that’s a good thing when your product goes from $800 to $2,700. But we had just bought the mill, so we weren’t making dissolving pulp. We had to go through this two-year conversion.”
But competitors were quick to convert or restart idled dissolving-pulp mills, and by the time the Thurso mill was producing, there was an oversupply.
That wasn’t the only problem. The conversion went way over budget, forcing the company to go back to the investment community to raise an additional $70 million.
“We burned through that really quickly and all of the sudden we’re dry again,” Wasilenkoff said. “You can only go to the well so many times. So we lost a lot of investor confidence, a lot of trust from the investment community, and understandably so.”
When all was said and done, the Fortress Specialty Cellulose mill conversion came in $140 million over budget.
Wasilenkoff and Fortress Paper went from being the darling of the Toronto Stock Exchange to being a pariah. Its shares fell from $62 per share in 2011 to below $2 earlier this year, and only recently bounced above $5, after the company posted positive earnings, signalling it may be turning a corner.
He blames a lot of the problems on the managers he hired to handle the conversion.
“We’re not operators here. We hand the keys to a management team. The plan broke down when the Thurso mill went so far off the rails that we had to get more and more involved than we ever expected. We got bogged down in operational issues, and that was not our skill set.”
Wasilenkoff spent three years and $400 million getting the mill in Thurso rebuilt and in production.
“We think eventually we will get a return on it,” he said. “We’re now feeling very, very positive. All the mills are running EBITDA-positive, we’ve got a good cash balance … and recently just announced this transition.”
In addition to the Fortress Specialty Cellulose mill in Quebec, the company also owns a mill in Switzerland that specializes in making banknote, passport and visa paper.
Now that he has handed the steering wheel over to Pelletier, Wasilenkoff plans to go back to what he does best: buying, building and selling companies. But he doubts he’ll be buying any more assets related to forestry. He’s looking at other sectors, including technology.
He is also hoping to cut his travel time in half and start spending more time with his wife, Laura, and their two sons, ages seven and nine, at the family’s home in La Quinta, near Palm Springs.
“I travel at least eight months out of the year, so for me it didn’t matter where I was,” he said. “I just go and see them whenever I can. I’m hoping to bring the travel down to maybe four months a year.”
He is painfully aware that his success in business has been at the expense of his family.
“I’ve missed more than half their birthdays. I’ve had conference calls on Christmas Day. I’ve won some entrepreneurial awards – I’m definitely not going to win father of the year ever, or husband of the year.” •