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Canadian Furniture Firm Closing Four Plants

Furniture producer Shermag has closed several plants in a last-ditch effort to survive in the face of a 'perfect storm' of financial challenges.

MONTREAL — Furniture producer Shermag Inc. has closed several Canadian plants in a last-ditch effort to survive in the face of a ''perfect storm'' of financial challenges, the company's chairman said Monday.
 
''We are trying to find the best way to keep on with the products we have now in Canada,'' Claude Pichette said in an interview after the company announced the closure of half of its plants and the layoff of 320 employees.
 
Closing down are three bedroom manufacturing facilities and a veneer plant. The Dudswell and Cookshire-Eaton plants in Quebec will lose 89 and nine workers respectively. Edmundston and Saint-Francois-de-Madawaska plants in New Brunswick will lose 71 and 84 jobs.
 
The total of 253 workers is on top of 67 who were already on layoff at the facilities.
 
That will leave the company with 750 employees.
 
The remaining four facilities in Granby, Lennoxville and the Mauricie region manufacture dining room sets, chairs and parts.
 
Pichette, who is an independent director on the board controlled by majority shareholder George Armoyan, said Shermag only has months to turn things around.
 
''We can't continue a long time like this,'' he said.
 
''We are like a dog chasing his tail. For years we have cut and reorganized...but all the things that we did we cancelled by the increase in the Canadian dollar.''
 
The Sherbrooke, Que.-based company has also faced competition from cheap Asian imports and a subprime mortgage crisis in the U.S. that has dwindled its sales demand.
 
It's a situation which Armoyan has described as a ''perfect storm.''
 
Although they knew the situation wasn't bright, workers were surprised by the closures because they had thought things looked positive when Armoyan's Clarke Inc. took charge of the operation and installed a new board.
 
''Everybody is very disappointed,'' said Isabelle Proulx of the United Steelworkers of America Union, who criticized the lack of ongoing dialogue with the company's new leaders.
 
''It was done in a very cavalier fashion. Even if they felt they had no choice because of the markets, these are human beings and it comes just before Christmas.''
 
Proulx believes the company's ultimate goal is to close all the Shermag facilities in Canada and relocate production to China.
 
''They believe that their survival will come from China so it wouldn't surprise me at all if they close everything in Quebec and go there completely.''
 
That's the most likely option facing the company, said an industry observer who didn't want to be identified.
 
''It's a sad story,'' he said.
 
''The question is will the company liquidate.''
 
Meanwhile, Greg Byrne, New Brunswick's business minister, said Shermag had received a loan of $600,000 about 18 months ago that was conditional on the facilities remaining open for two years.
 
Byrne wants to meet company officials to discuss a reimbursement plan.
 
Jordan Benincasa of Morningstar said the closures appear to confirm that Armoyan plans to adopt a ''deep value play'' by selling all Shermag's assets and reinvesting the proceeds elsewhere.
 
''This is something that is not uncommon,'' Benincasa said in an interview. It was adopted successfully by billionaire Warren Buffett after he purchased Berkshire Hathaway.
 
But Pichette said the board hasn't yet decided how it will ultimately respond.
 
Some production may be transferred overseas and other work may be subcontracted, but Pichette said Armoyan doesn't want to sell of the company.
 
''Our main investor has a lot of money to lose if we go bankrupt,'' he said.
 
Asked if turning around Shermag was proving to be tougher challenge than Armoyan had thought, Pichette responded: ''I think so.''
 
Shermag recently reported that second-quarter losses more than tripled to $3.7 million and revenue fell 40 per cent to $27.2 million.
 
The company created a board committee to analyze the situation on Nov. 20, the same day that Jeffrey Casselman resigned at president and CEO. Under his leadership, Shermag closed a series of plants, laid off workers and transferred some of the company's manufacturing to China in a bid to cut costs.
 
Casselman had suggested he was working on a plan to reduce costs further.
 
In February, Shermag announced plans to permanently close two Quebec factories already on temporary layoff and significantly reduced staffing at almost every plant. The moves, effective in April, affected 283 workers in Disraeli and St-Etienne-de-Lauzon, Que., and caused the company to write down $3.5 million on long-term assets.
 
On the TSX, company shares climbed from their all-time low by gaining two cents or about three per cent in Monday trading to close at 67 cents.
 
In 2003, Shermag shares reached nearly $16. Over the last year, the peak has been $2.68.
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