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Verso Paper surges after disclosing talks about potential tie-up with NewPage

Shares of Verso Paper (VRS), a producer of coated papers, rallied after the company announced that it has held discussions with certain holders of the 11.375% first-lien senior secured notes of NewPage Corporation, another paper producer, in an effort to achieve a potential business combination of the two companies as part of a consensual plan of reorganization in NewPage’s Chapter 11 bankruptcy proceedings. Verso said that it believes that a combination with NewPage would create a stronger business in the global coated and supercalendered paper industry because of the material cost savings that would be achieved. Verso’s proposed transaction would provide NewPage’s first-lien noteholders with $1.075B of new Verso first-lien notes, $150M of Verso common stock, and $200M of cash. In addition, the proposed transaction would include a 100% recovery in cash to repay NewPage’s debtor-in-possession financing, a 100% recovery in cash for the allowed priority and administrative claims in the bankruptcy proceedings, a to-be-determined amount of Verso common stock for the holders of NewPage’s second-lien notes, and a to-be-determined recovery for NewPage’s unsecured creditors. To facilitate the transaction, a $200M cash equity investment in Verso has been contemplated, the company said. Shares of Verso surged 77c, or 65.81%, to $1.94 in mid-morning trading.