February 22, 2014 Survival of NewPage, Verso depends on proposed merger
Financial analyst says paper companies could emerge stronger, better suited to fight off foreign competition
Matthew Bieniek Cumberland Times-News
CUMBERLAND — A merger of two struggling paper companies remains likely, despite what one financial analyst said was a case of brinkmanship by bondholders involved in the negotiations.
New York City-based analyst Chip Dillon said he’s reasonably certain the planned merger between Verso Paper Corp. and NewPage will go forward because there is no reasonable alternative. Dillon, of Vertical Research Partners, said the need to extend negotiations between Verso and its bondholders, announced late Thursday, isn’t in itself significant. The initial request to bondholders to buy into decisions needed to finance the merger expired Thursday and were then extended for a second time.
“It’s a price negotiation process,” Dillon said. The deal needs to happen because the alternative is for the two companies and their debt holders to commit suicide, he said.
If the deal goes through, the companies emerge stronger and better able to fight foreign competition together. The bond holders are seeking a better deal. They represent money managers and hedge funds, which include investments by pension plans and other organizations that handle money for large numbers of mutual funds and other people who hold Verso debt. Verso needs the deal to fund the merger.
“Everyone is doing their jobs,” said Dillon. The good news is the industry is running at 90 percent capacity, so the market for the products is in decent shape for the moment.
NewPage on Thursday refused to accept changes to the terms of the takeover agreement, according to documents filed with the U.S. Securities and Exchange Commission. The filing contains a letter from NewPage’s chairman, Mark A. Angelson.
“I write in response to Verso’s request that NewPage waive, or failing such waiver, amend the condition to closing in the merger agreement,” the letter said.
vrs management knows what it needs to do. if they want bondholders to take a haircut, then they need to offer up equity. otherwise, bondholders can sit tigt and let the merger collapse. bondholdders might even take all the equity in a chapter 11 filing.
“We do not consent to Verso’s request for a waiver or amendment. ... If Verso is unable to satisfy the exchange offer condition, we will re-evaluate the merger and consider all our options,” Angelson wrote to Verso officials.
While NewPage has emerged from bankruptcy, Verso remains “functionally bankrupt” and has no money to invest in the deal without an agreement by bondholders, said Dillon. The only chance for the two companies to survive is the merger, which would likely create a stronger company.
It is likely a mill or two will close as a result of the merger, since the companies have overlapping production of products. The U.S. Department of Justice may also require a plant or two be sold off because of antitrust issues, Dillon said.
The merger wasn’t to be closed until the end of the year, according to the original merger announcement last month.
While the mill closures will hurt, the alternative could lead to both companies shutting down in five or so years without the merger, Dillon said.
On Jan. 28, Verso officials expressed concern about lack of progress on debt exchanges needed to finance the merger. “Verso is concerned about its ability to satisfy the condition and thus close the merger,” the Jan. 28 letter, signed by David J. Paterson, the president and CEO of Verso, said. The trouble involves complicated financial transactions announced at the time of the merger.
A planned merger between the two struggling companies was announced in early January. Verso is the smaller of the two companies.
The Luke mill, which is now owned by NewPage, employs nearly 900 people.
In the summer of 2012, NewPage turned down a proposal to combine operations with Verso while NewPage was in Chapter 11 bankruptcy.
NewPage emerged from bankruptcy in December 2012.
Verso Paper Corp. is a leading North American producer of coated papers, including coated groundwood and coated freesheet and specialty products, with $1.5 billion in net sales for the year ended Dec. 31, 2012. Verso is headquartered in Memphis, Tenn., and owns paper mills in Maine and Michigan.
NewPage is a leading producer of printing and specialty papers in North America with $3.1 billion in net sales for the year ended Dec. 31, 2012. NewPage is headquartered in Miamisburg, Ohio, and owns paper mills in Kentucky, Maine, Maryland, Michigan, Minnesota and Wisconsin.
Verso officials did not respond to a request for comment.