TORONTO (AP) -- Canada agreed Tuesday to pay newsprint maker AbitibiBowater more than $100 million to settle the company's claim over what it said was an illegal seizure of its assets.
The forestry giant had sought $500 million under the provisions of the North American Free Trade Agreement after Canada's Atlantic-coast province of Newfoundland expropriated some of its assets.
The province took the measure after AbitibiBowater, one of the world's largest pulp and paper companies, closed a Newfoundland mill in 2008 and said it would lay off an estimated 800 workers in Grand Falls-Windsor, a town of 13,500.
The company's action sparked outrage, prompting the Newfoundland government to pass a bill expropriating the company's timber and water rights.
The Wilmington, Del.-based company, which has administrative headquarters in Montreal, has now dropped its suit in return for more than $123 million.
Canada's Conservative government, a strong proponent of free trade, said the settlement reaffirms Canada's commitment to a rules-based business environment that encourages free trade and investment.
"This payment represents the fair market value of the company's expropriated assets," Canada's Foreign Affairs and International Trade Department said in a statement.
"The Government of Canada has resolved this dispute for the benefit of Canada's long-term economic interests."
AbitibiBowater is in the process of restructuring after seeking bankruptcy protection and the government said the payment will be made after the restructuring is complete. The company has faced a deteriorating customer base as newspapers struggle and their demand for paper plummets.
AbitibiBowater had described the Grand Falls-Windsor operation as the highest-cost mill of its kind in North America, but Newfoundland Premier Danny Williams said that was because the company had allowed it to deteriorate for years.
Williams' office issued a release Tuesday, saying they were pleased the matter has been concluded.
The company has operations in the United States, Canada and South Korea.
"This is an acceptable settlement for our company, stakeholders and creditors, given the set of circumstances faced by the company at this particular time," AbitibiBowater president David Paterson said in a statement. "We are now able to move forward and focus on finalizing our restructuring process and plans to emerge from creditor protection in the fall 2010."