Thursday, July 12, 2012

Did Verso Come To Purchase NewPage Or To Bury It?

Talk about the pot calling the kettle black: NewPage told a bankruptcy court this week it is reluctant to merge with Verso Paper because of its rival’s high risk of going bankrupt.

But it also revealed an even bigger reason to rebuff Verso’s advances: Rather than engaging in a good-faith effort to forge a union between North America’s two largest makers of magazine-quality paper, NewPage said, Verso’s owners are engaging in “tactics of holdup and delay” to weaken NewPage and hinder its emergence from bankruptcy protection.

NewPage’s bankruptcy case presents Verso “with both significant opportunities and risks,” an attorney representing holders of first-lien debt wrote to the bankruptcy court today.

“On the one hand, Verso’s market position will be greatly improved if Verso is able to acquire NewPage’s assets at fire-sale prices, or if the Debtors fail to successfully reorganize [NewPage],” Dennis F. Dunne wrote.

“On the other hand, Verso is significantly threatened by the possibility
that NewPage will successfully reorganize under a stand alone plan and emerge from bankruptcy a stronger, healthier company with a deleveraged balance sheet.” [Editor’s note: In the declining, capital-intensive publication-papers industry, that’s known as the “He Who Gets To Bankruptcy First Wins” strategy. See for example Resolute Forest Products AKA Abitibi-Bowater.]

As NewPage veered toward insolvency last year, Verso’s primary owner, hedge fund Apollo Management, snapped up many of NewPage’s nearly worthless second-lien bonds.

NewPage is so heavily indebted that holders of those bonds will apparently end up with little compensation, if any at all, once the claims of first-lien debt are satisfied. But Apollo has found other value in the bonds, using them as leverage to gain a place at the table in bankruptcy-court discussions of NewPage’s future and to put forward various schemes to combine the two companies.

NewPage is eager to exit Chapter 11 and hopes to file a plan of reorganization within 30 days, but says a proposed merger with Verso would undergo an antitrust review of at least six months.

Both companies have bolstered their arguments to the court this week with the comments of stock analysts. Verso on Tuesday cited a recent J.P. Morgan report that called a Verso proposal “surprisingly reasonable” and “the best outcome for . . . NewPage bondholders.”

NewPage countered yesterday with a report from industry analyst Chip Dillon saying that if Verso’s CEO “is able to turn Verso’s fortunes around without a major financial restructuring, he will have pulled off the single hardest turnaround in the history of the paper industry.”

It also cited analyst Adam Gefvert: “NewPage is getting crushed with debt, and the first lien creditors are better off going through bankruptcy than merging with Verso. These creditors are just trying to dig themselves out of an unfortunate financial hole. They don’t want to dig themselves a deeper one by merging with Verso.”

Gefvert has shorted Verso stock because “long term investors have a better chance investing in a different kind of paper – lottery tickets.”

Also this week, Leon Black, Apollo’s lead partner, was revealed as the art collector who paid $120 million in May for Edvard Munch’s “The Scream”. Many people find the work haunting, even depressing, but compared with watching his investment in the paper business the past few years, the famous painting probably looks downright cheery to Black.

Moral of the story: The best way to make a small fortune in the paper business is to start with a large fortune.

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D. Eadward Tree said...

About the headline, which a lot of people didn't get. It's an allusion to Marc Antony's famous speech in Shakespeare's "Julius Caesar", which begins: "Friends, Romans, countrymen, lend me your ears; I come to bury Caesar, not to praise him."

Anonymous said...

Maybe a more appropriate headline would have been "Is NewPage worth more to Verso dead than alive?"

Anonymous said...

Call Verso opportunistic if you will, but here's Verso's chance to buy market share in a declining market with negative profit margins(assuming that the offer passes antitrust muster) at a bargain basement price.

D. Eadward Tree said...

I like the "dead or alive" headline. I wouldn't have to explain that to anyone.

Margie Dana said...

D.Ead, love your headline - totally got it. :) Thanks for this coverage. Nothing gets by you.

Anonymous said...

Et tu D.?

Poor New Page - it's bad enough they've been stripped and decimated by Cerberus since being "saved" by the typical private equity group - now they have to be "rescued: by someone idiotic enough to pay $120 million for "The Scream". It's situations such as this that make the 1% deserve the image they've brought upon themselves. Money grabbing, power seeking, despots that make you realize history CAN and will continue to repeat itself. Unfortunately the rise and fall of the New Page Empire was much, much too brief....

Anonymous said...

Lot Of Bernie Madoff types out there, sociopaths in a suit, with a blue bloood degree.

Anonymous said...

I'm holding out hope that somebody with more money than Verso buys NewPage. I figure within 6 months of coming out of bankruptcy NewPage will be purchased by someone else. But, if the new company is still sending all the cash to the bank, it isn't going to help.

Mark said...

I like both headlines - the original and the "dead or alive" suggestion. Verso would, of course, be better off without NewPage as a competitor in the shrinking North American coated papers marketplace. The reverse is true as well.

Alas, they are both companies with great roots: Champion International and Westvaco (the original one). There are some good assets and people in both companies; I've worked with both of them and have much respect for each. There is too much capacity though. Mills must close - just which ones and when. Will Sartell, with a single operating machine [prior to the fire], be the next victim?

Guess we all stay tuned and stay hopeful for ideas that create entirely new markets. In the meantime, both companies need to become as innovative and cost-efficient as possible.

- Mark

Anonymous said...

Next victim I hate to say is Rumford. Look at the monthly operating reports. Rumfords net sales are constantly in the negative.The natural gas contract was cancelled yesterday and lets not forget they almost got away with selling the furnace from the place. I am not sure Rumford is going to be the only victim though,Wikliffe and Luke are looking pretty scary.I would have to believe Verso has a goal to influence the closure of Rumford to help the other two maine operations. It make me sick to see so many people loose such good paying jobs.Newpage is still loosing millions per month and no way would they be allowed emerge from chap 11 with loosing mills still operating. I believe the disclosure statement will provide details we have been waiting for. What a shame!