Verso Paper Corp. will acquire its rival NewPage Holdings Inc. in a $1.4 billion deal revealed Monday, creating a company that will employ nearly a third of all paper industry workers in Maine.
Under the terms of the deal, NewPage Holdings will receive $250 million in cash and Verso Paper will borrow $650 million at closing to help cover the cost of the acquisition. NewPage also will receive as much as 25 percent of Verso’s stock under certain circumstances. The agreement also includes the refinancing of $500 million of NewPage’s debt.
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Verso Paper, which has mills in Jay and Bucksport, and NewPage Holdings, which owns Rumford Paper and emerged from Chapter 11 bankruptcy protection last year, held merger discussions previously, but never reached an agreement. Combined, Memphis-based Verso and NewPage, based in Miamisburg, Ohio, will have 11 manufacturing facilities and annual sales of about $4.5 billion.
The two companies have a total of 2,250 workers in Maine, and operations in five other states. The acquisition, which has been approved by the boards of both companies, is expected to close in the second half of 2014.
Verso Paper produces 930,000 tons of pulp annually and 1.5 million tons of paper used in magazines, catalogs and commercial printing such as advertising brochures and annual reports. It has 2,200 employees nationally, including 1,400 in Maine.
NewPage Holdings’ mills produce about 3.5 million tons of paper a year, including coated and specialty papers for magazines, catalogs, books, coupons, inserts and direct mail, and the specialty paper used in beverage bottle labels and food packaging. NewPage Holdings now has about 850 employees in Maine, but it previously announced that it would idle one paper machine in Rumford and reduce its workforce to about 700.
No other immediate cuts have been announced, but in a joint statement, the companies said they expect $175 million in pre-tax cost savings in the 18 months after the deal closes. They said they expect to save some administrative costs, and will consolidate headquarters offices.
“What this deal means for the mills and the workers is unclear,” said John Williams, president of the Maine Pulp & Paper Association, an industry lobbying group. “I’m sure, once the deal is closed, Verso will be looking for ways to combine service. I’m not sure if there will be cuts, but they may look for ways to save money companywide.”
The United Steelworkers, which represents workers in both companies, has an agreement with the companies that should protect workers in the sale, said Jon Geenen, international vice president with the union, who oversees the pulp and paper sector. Greenen would not disclose details of the agreement or speculate about long-term job security.
“We’ve been expecting the coated paper market to consolidate. It’s been under incredible pressure due to the electronic substitution for that paper and international competition,” Geenen said. “Our concern is not to over-leverage the new entity so it can compete.”
New Page Holdings did not return calls seeking comment, and Verso Paper declined to comment on the prospects for layoffs.
The merger comes at a difficult time for paper mills across the country and particularly in Maine, the nation’s second-largest producer of paper. New technologies have cut into the market for printed magazines, international competition has escalated, and the economy has remained lackluster.
“There are multiple issues conspiring against an industry that didn’t have great margins to begin with,” said Robert Rice, professor of wood science and technology at the University of Maine. “We have, since 2008 and 2009, had a very strained economy and there has been substantial impacts in the paper market across the board.”
Rice said he doesn’t expect the consolidation of Verso Paper and NewPage Holdings to affect the price of paper. Rather, the biggest change for the two companies will likely involve shifting production among plants to make sure each machine is operating at capacity.
“This is a good deal for Verso,” Rice said. “By purchasing a direct competitor, they will be able to monitor and control their production more precisely. They can have a machine or plant specialize and operate at full capacity.”
Based on volume, Maine produces more paper than any state other than Wisconsin, according to the Maine Pulp & Paper Association. About 7,400 people in Maine were employed in pulp and paper manufacturing in 2010, the most recent year for which figures are available.
In a prepared statement, Verso Paper CEO Dave Paterson said, “We continue to face increased competition from electronic substitution for print and international producers, but as a larger, more-efficient organization with a sustainable capital structure, we will be better positioned to compete effectively and deliver solid results despite the industry’s continuing challenges.”
Paterson will lead the combined organization. At closing, a current director of NewPage Holdings will join the board of Verso Paper.
Shares of Verso Paper surged in Monday’s trading, gaining $2.56 per share, nearly 400 percent, to close at $3.21 on the New York Stock Exchange.
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