Special Report: Parsing the Implications of a NewPage-Verso Deal
While NewPage and Verso are reportedly in talks to deepen their relationship, a full-fledged merger is unlikely—though the implications of such a deal might not be as dire as some predict, publishing industry observers said this week.
The two companies, which together produce more than 50 percent of the coated paper used in North America, have been the subject of merger speculation since March 2010, when Apollo Management, which has a controlling interest in Verso, purchased more than half of financially-strapped NewPage's debt, leading many to assume Apollo was hoping for an eventual debt-for-equity swap and control of the company.
Apollo is in talks with Cerberus Capital Management, which owns NewPage, about ways to deal with NewPage's $800 million debt, PPI Pulp & Paper Week reported. The paper industry has been hit hard by the recession and market shifts, with the coated paper market thus far unable to regain profitability through price increases or consolidation.
A full-fledged merger would be unlikely to pass regulatory muster, notes pseudonymous blogger, D. Eadward Tree, who reports on publishing industry production and manufacturing news in his blog, Dead Tree Edition.
"Magazine publishers, printers, catalog companies, and other major buyers of coated paper would certainly cry foul if two companies controlling more than half of the continent's coated paper capacity tried to merge," he wrote on Tuesday. "But it's not clear whether Apollo would trigger any antitrust alarms if it obtained a sizable equity stake in NewPage by swapping debt for equity."
Anonymous commentators on the influential blog write that a debt to equity swap would likely come with representation for Verso on NewPage's board of directors, which could trigger anti-trust action by the federal government. On the other hand, a debt for assets swap (such as Verso's taking ownership of a mill) could avoid such action while freeing up cash for New Page to service remaining debt.