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Maine Paper Mill Merger Plans Hit Snag
01/30/2014   Reported By: Jay Field

A merger of two paper companies, affecting three mills in Maine, has hit a snag. Earlier this month, Verso Paper announced it would buy New Page Holdings for $1.4 billion. But in a letter released this week, Verso told the New Page Board of Directors that too few of its debt holders are willing to participate in a swap required to finance the deal. Some analysts say the current trends in the market for coated paper may be spooking investors, but others say the deal still makes good business sense for both companies. Jay Field reports.

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Verso, based in Tennesse, runs three mills: one in Michigan and two in Maine - in Bucksport and Jay - that employ more than 1,400 people. Over 800 people work at New Page's plant in Rumford. The Ohio-based company runs seven other mills in Wisconsin, Minnesota, Michigan, Maryland and Kentucky.

By acquiring New Page, Verso would control half the coated paper market in the U.S., with around $4.5 billion a year in sales.

"On paper, it looks good," says Robert Rice, a professor of wood science and technology at the University of Maine. Rice says after a period of reconfiguration and restructuring, the Verso and New Page mills would likely emerge in a much more competitive position in the market.

"The combination of marketing skills, buying power on the raw materials markets, the combination of skills in producing specialty papers would be advantageous to both companies," Rice says.

It sounds like a deal debt holders and investors would be excited to get behind. But a letter this week, sent by Verso to New Page's board, suggests a level of skepticism that could derail the merger. To finance the deal, Verso pledged to do a swap, where its debt holders agree to issue new notes with different terms and maturity dates.

But in the letter, Verso revealed that, so far, too few of its debt holders have been willing to do these exchanges.

"People have been referring to me as Dr. Doom, and the bad news is that Dr. Doom was an optimist," says Lloyd Irland, a forestry consultant based in Wayne. "There's a reluctance in the markets to finance mills in this industry and in this region right now."

Markets for coated paper have been shrinking in recent years due to competing pressures, including competition from paper companies abroad and those millions of eyeballs fixated 24/7 on their computers, laptops, tablets and smart phones.

John Williams runs the Maine Pulp and Paper Association. He says the shift to reading online - what the industry calls electronic substitution - will continue. But Williams says that doesn't mean the market for coated paper can't get better.

"There are just some things about reading something on the printed page that you just can't get on a tablet or a computer," Williams says. "So I think the market is going to be there. And in fact, there's some encouraging signs. Newsweek is starting publication again."

Whether a new and improved Verso will be a player in this market depends, in part, on whether its debt holders can see the same future for coated paper that industy insiders do.


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