PhillyDeals: Manayunk paper mill faces a new reorganization

The paper mill on flood-prone Flat Rock Road in Manayunk, one of the oldest industrial sites in Philadelphia, has changed owners at least half a dozen times since the 1970s. It's facing yet another reorganization.

Current owner Sun Capital Partners Inc., the Florida-based buyout firm coheaded by Marc Leder, one of the new owners of the Philadelphia 76ers, in 2008 made Manayunk its corporate headquarters for a reorganized group of paperboard and packaging plants called Paperworks Industries Inc.

Dan David (left) and Majed Souedian investigated Chinese stocks and found irregularities.

Boss Thomas Garland said last year he expected the company would keep growing, under Sun's ownership and with financing from PNC Bank, for three to five years at least.

But Garland left Paperworks last month. On Feb. 7 Standard & Poor's cut Paperworks' credit rating from B to B- and warned of further cuts and bond defaults due to "sluggish demand" and "weaker-than-previously-expected" cash flow after Sun refinanced the company's debt last year.

Temporary boss Richard F. LeBlanc announced last week that Paperworks was being split into separate paperboard (including Philadelphia) and packaging divisions, to "improve efficiency and streamline service." LeBlanc and a spokeswoman did not return calls. The plant employs around 150, down from 800 in the 1970s.

Here to China

A couple of Skippack-based investors say they're finding big, ugly holes in the stories China-based companies tell U.S. shareholders.

Majid Souedian, a Temple graduate who learned portfolio management at Vanguard Group before setting up his own investment firm, started talking foreign stocks with Dan David, a store-chain jewelry operations manager, a decade ago when they met playing flag football in a Lansdale league.

By 2006, they had set up what is now GeoInvesting, which hires researchers to check out China stocks.

They say they were looking for winners. But "what we found was shocking," David said. Information in Securities and Exchange Commission filings by mid-market China companies was often outdated, "wrong, or lying, take your pick." U.S. brokers and analysts seemed to have little interest in exposing problems.

The pair's conclusion, David said: "Most of the short sellers" who bet against particular China stocks "are right."

Last week, GeoInvesting issued a second report amplifying its January accusations that Seattle-based L&L Energy, a Nasdaq-traded company that counts Goldman Sachs, BlackRock, and the TIAA-CREF college pension fund as investors, and former Bush and Clinton administration officials among its officers, does not own a coal-mine complex in China's Yunnan province that it claimed as an asset.

GeoInvesting's new report identifies businessmen Hu Shiwei and Zhang Baoguo as the mine's controlling owners, posts local-government mine inspection and licensing documents and English translations it says prove the men's ownership, and links a video of Hu denouncing L&L's claims.

L&L answered the first report with a statement that a subsidiary of a subsidiary had agreed to buy the mine. Last week, I asked spokesman Sean Morishige about the documents in GeoInvesting's detailed second report. He promised the company would respond. It hasn't. L&L shares have fallen from above $7 a year ago to below $2.50.

GeoInvesting has also posted reports critical of China Natural Gas Inc., Lotus Pharmaceuticals, and chicken breeder Yuhe International, each of whose share prices have since fallen below $1.

"Investors still have no idea that their mutual funds hold these," David told me. He said China does little to punish fraud against U.S. investors. "I still believe China is the future - but until they have the same liability as U.S. companies, corruption and fraud" will be common there.


Buyout firm TGP (Texas Pacific Group) is not the new owner of Cardone Industries Inc. of Northeast Philadelphia, as I wrongly stated in print editions of Sunday's column. The sale, announced last fall, was canceled, as The Inquirer noted Jan. 21.

Contact columnist Joseph N. DiStefano at 215-854-5194, or @PhillyJoeD on Twitter.