EAST MILLINOCKET, Maine — Negotiations to buy two Katahdin region paper mills for $1 broke off Friday and the East Millinocket mill up for sale has apparently shut down, devastating the local economy by idling about 450 workers and possibly ending a century of papermaking in the Millinocket area.Lee C. Hansen of Meriturn Partners in San Francisco confirmed that the negotiations with East Millinocket and Millinocket town officials over the setting of property tax rates for the towns’ mills had reached an impasse. 

He indicated that Meriturn was withdrawing from buying the mills. “Sadly, this is the end of the process,” he said. But then he seemed to reconsider, suggesting that a door might still be open for other parties involved to restart negotiations with Meriturn.

Meanwhile, Katahdin Paper Co. LLC spokesman Rick Grunthaler said that the East Millinocket mill would not restart on Tuesday, as had been planned. The mill had been on a temporary shutdown since April 1.

“It will not start until further notice,” Grunthaler said. He declined to comment further.

Gov. Paul LePage issued a statement Friday afternoon after the announcement that negotiations had come to an end.

“I am disappointed by the news that Meriturn Partners is no longer considering the acquisition of the Katahdin Paper mills,” LePage said. “This is tough news for a region with a proud history in the paper business, but we will continue to work toward economic sustainability within the region.”

LePage’s spokesman, Dan Demeritt, would not say whether efforts to find a new mill buyer would continue.

LePage had been directly involved in the negotiations as recently as Wednesday, seeking a 30-day extension for deliberations from Brookfield Renewable Power Inc. President Richard Legault, he said. Toronto-based Brookfield Asset Management is the parent to Katahdin Paper and Brookfield Renewable.

Mark Scally, chairman of East Millinocket’s Board of Selectmen, said he hoped the deal is not dead. East Millinocket and Millinocket town leaders met at the Millinocket town office on Friday afternoon to continue executive session discussions about their remaining options, Scally said.

“My gut feeling is that it is not over,” he said. “They said that April 29 was the date. I talked to Lee Hansen yesterday. He was getting ready to talk with the governor, and the implication I got [from Hansen] was, ‘All right, we will see what we can do.’ I did not get the impression that it was over.”

The towns’ leaders will meet with LePage in Augusta at 2 p.m. Monday, Scally said.

“Maybe he’s got another strategy we could try. We don’t know,” Scally said.

Millinocket Town Manager Eugene Conlogue issued a statement Friday afternoon that echoed LePage’s interpretation of events.

“The Town of Millinocket regrets that Mr. Hansen has ended his pursuit, but understands the great challenges he faced in completing the transaction. We wish him well in his future endeavors,” Conlogue wrote. “The towns will explore whatever options may be available to facilitate the sale of the two mills to avoid a permanent shutdown of the East Millinocket mill and to reopen the Millinocket mill.”

Meriturn signed a letter of intent to purchase the paper mills in East Millinocket and Millinocket from Brookfield by April 29 provided several conditions were met, including the setting of favorable property tax rates at both mills. Brookfield had originally promised that it would close the East Millinocket mill on April 22. The Millinocket mill closed in 2008.

Meriturn’s other conditions included arrangements to establish a biomass cogeneration facility at the Millinocket mill; contracts with the mills’ labor unions; and relief from any liability associated with an old mill dump in the Dolby section of East Millinocket. Brookfield and Meriturn also sought an agreement by which Meriturn could buy electricity for the mills.

Scally and Conlogue said none of the conditions were met, but union leaders reached a tentative agreement weeks ago and a membership contract vote was set for April 15.

In an email he sent to several of the parties involved, Hansen indicated that the slow pace of negotiations had forced the East Millinocket mill’s customers to start looking for new paper suppliers, which doomed his efforts.

“We have made it clear to the parties that the delays in resolving the conditions risked losing customers.  Unfortunately, yesterday several of Katahdin’s key customers confirmed they have now found alternatives for their supply of paper,” Hansen wrote Friday.

“With the conditions not yet cleared and the recent events regarding Katahdin’s customer base, we do not believe there remains a business to turn around and have informed Brookfield of such,” he added.

U.S. Sens. Susan Collins and Olympia J. Snowe, both R-Maine, and Democratic U.S. Rep. Mike Michaud of East Millinocket expressed sadness at Meriturn’s withdrawal and offered whatever federal support they could muster to the workers who have lost jobs.

“The news that the negotiation for the future of this mill has stalled is extremely disappointing and will have significant implications for the region and communities whose livelihoods have been rooted in this industry for generations,” said Snowe, ranking member of the Senate Committee on Small Business and Entrepreneurship.

“We have such a long and proud tradition of manufacturing in the Katahdin region and a dedicated workforce second to none. I truly hope that there remain options ahead of us,” said Michaud, a former Katahdin paper mill worker.

Duane Lugdon, a leading negotiator for the unions at both mills, raised hope that a new buyer could be found.

“It now unfortunately appears that the short-term future of the operation in East Millinocket is very questionable,” Lugdon said. “The State of Maine is continuing its attempt to find a buyer for the assets, and it would appear that those efforts may be the only hope of insuring the future for the Katahdin Paper operations.”

Snowe said she learned last week that the region is eligible for the federal New Market Tax Credit Program, which could serve as financing tool to reinvest in the mill. She also asked Katahdin Paper to work with her to ensure that the facilities remain in a viable condition for resale.

Under Meriturn’s first proposal to get an estimated $48 million in tax breaks over 10 years from both towns, the East Millinocket mill’s tax bill would have declined from $2.1 million to about $46,800 in annual payments to the town starting in the 2011-12 fiscal year, which begins July 1.

Millinocket would have seen a decline from $2.6 million to about $50,000, Conlogue has said.

The towns had since made a counteroffer to Meriturn, but officials declined to provide details. As recently as Thursday afternoon, Conlogue said he didn’t expect any imminent conclusion to the talks.

Scally said he felt that the deliberately paced property tax negotiations with the towns didn’t necessarily kill the deal.

Hansen “was disappointed with how slowly the towns responded. However, we did respond eventually, and there were so many other factors,” Scally said. “When I mentioned on the phone that he had pretty much reached all of his points [conditions for purchasing the mill], he said, ‘You forgot about the biomass boiler.’”

The mills’ union leaders will meet with their members at 3:30 p.m. and 6:30 p.m. Tuesday at Schenck High School in East Millinocket to discuss applying for unemployment and job retraining, Lugdon said.

“In view of all that has transpired in recent years,” Lugdon said, “it is unfortunate that yet again the employees and the surrounding communities are facing uncertainty with the jobs that have long sustained them.”

“It is the end of a dynasty,” he added. “You look back at the history of the region some years ago, and it was the premier place to make paper in the nation. It’s been a long and illustrious history.”