Paper Tigers: Verso Proposes Merger With Unwilling NewPage
Late yesterday, Memphis, Tenn.-based paper company Verso announced a proposed merger with rival NewPage Corp. Market reaction this morning to the proposal was very positive, with Verso shares up nearly 59 percent at noon (they were up as much as 71 percent earlier).
Verso, which manufacturers coated papers used in magazines and catalogues, and NewPage, paper producer for magazines, catalogs, books and other products, have both been under financial strain from a declining North American paper market. NewPage has been under Chapter 11 bankruptcy protection since September.
Verso released a press release yesterday stating it is in discussion with several holders of NewPage liens "in an effort to achieve a potential business combination involving Verso and NewPage as part of a consensual plan of reorganization in NewPage’s Chapter 11 bankruptcy proceedings."
The proposed purchase would provide note holders with $1.425 billion of value including Verso stock, and pay off debts.
"Verso 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," the press release states. "Verso also believes that a combination with NewPage would provide a compelling option for a restructuring in that it would afford NewPage’s first-lien noteholders a very attractive recovery, while at the same time treating fairly the other NewPage constituencies, including its employees, other creditor classes, and customers."
Verso added it has been "disappointed in the lack of progress in advancing its discussions" with NewPage first-lien noteholders.
NewPage released a statement today acknowledging Verso's unsolicited proposal and stating the takeover poses "significant downside risks to … stakeholders, employees, and business." The company says first-lien noteholders do not support the proposal and "does not anticipate further discussions regarding this proposal."
Markets seem to disagree as the notion of a combined company strikes investors as a positive move.