Thursday, October 30, 2014

NewPage and Verso Find a Catalyst For Their Merger

Update: The Justice Department announced on Dec. 31 that the Catalyst deal will satisfy its antitrust concerns about the Verso-NewPage deal. Both the Catalyst deal and the Verso-NewPage deal were completed on Jan. 7.

Today's announcement that Catalyst Paper will buy two NewPage coated-paper mills apparently means that the merger of NewPage and Verso Paper will move forward.

Catalyst revealed that it will purchase NewPage's Rumford, Maine and Biron, Wisconsin mills for $74 million -- more than quintupling the Canadian company's capacity for making coated paper. One condition of the sale is that Verso-NewPage deal be consummated.

That merger has been delayed by federal antitrust officials, who were apparently concerned that, by owning half of North America's capacity to make coated paper, a combined Verso-NewPage would have too much market power and be able to drive up prices. NewPage's sale of the two mills, coupled with Verso's decision to close its Bucksport, Maine mill, were presumably a condition of gaining the U.S. Justice Department's approval for the merger.

Catalyst would only pay about $85 per ton of capacity to make paper that typically sells for at least $850 per ton. That looks like a fire-sale price, except that the continent's demand for coated paper is half of what it was barely a decade ago. And except that we've seen this movie before, and the ending wasn't pretty.

Justice allowed the 2007 merger of newsprint giants Abitibi and Bowater to go forward only after Abitibi unloaded one of its gems, a 100%-recycled mill in Snowflake, Arizona, to Catalyst for a bargain price. But a few years later, Snowflake hit a perfect storm -- Chinese buyers driving up the price of West Coast recycled paper, black liquor tax credits subsidizing competitors using virgin pulp, and the collapse of the U.S. newspaper industry -- and was shut down.

Both AbitibiBowater (now called Resolute Forest Products) and Catalyst ended up going through bankruptcy reorganization and emerged as smaller but healthier companies.

Catalyst makes mostly newsprint and uncoated papers in western Canada, but does have a single machine making coated groundwood paper.With the purchase announced today, Catalyst would pick up four machines that make coated freesheet as well as coated groundwood paper, plus some market-pulp capacity.

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13 comments:

Anonymous said...

Huge move and I would expect we'll see the consummation of the Verso / NewPage deal very soon (tomorrow or Monday?). The only thing possibly holding it up now could only be a sale on the freesheets side?

Anonymous said...

. . . and they will get some really nice papermaking equipment at Biron that would probably be much more useful to someone with a little more imagination that sees potential beyond it being a LWC mill.

Anonymous said...

Dumb and Dumber part II . Market is CLEARLY switching to sca ++, sca, scb. Irving and PH both have a large currency advantage, and the one has basically a free power subsidy. No matter what the sale price, they just bought a lot of trouble.

Anonymous said...

Wow. You guys seem really positive. Not. This is a good thing, but I am cautious about the fact that we have seen Catalyst do this before with Snowflake. Though, one would hope this would be a little different. As for the deal running through the DOJ by Monday, have you ever seen the Government work that quickly? As for a freesheet side sale...it won't happen. Or should I say, the Rumford sale satisfies that market concentration for Verso. As for people opening their eyes to make something different than LWC CGW....doubt it. What would you do, make freesheet? Really. Uncoated mechanical....even worse a margin than LWC. Doubt it. You need virgin pulp capacity to make those moves, though you have it, you won't own it and it isn't in Rapids best interest to restructure capacity for a competitor. Also, the backend on Rapids is in pretty dismall shape. As for SCA++, SCA, and SCB; you can't switch many publication grades in this direction. Sorry. Market isn't large enough and probably never will be. Also, what the exchange rate today is may be totally different tomorrow, so there goes your idea on "free subsidy". I would hope businees aren't making long term strategy decisions based on the delta in exchange rate..if they do, they probably shouldn't be in business. Lastly, this is a good deal for ALL around the table. It will have its bumps and it won't happen over night, but it will happen. I am just glad to finally shed "NewPage" and close that chapter. Let's not doom this transaction yet fellas.

Anonymous said...

So let's do the math on this . . . 8 NewPage Mills + 3 Verso Mills - 1 Verso Mill - 2 NewPage Mills = 8 NewVerso Mills. Looking at tons, NewPage shows about 3.5 million, Verso 1.5 million for a total of 5.0 million tons - 405k tons from Bucksport - 995k tons from Biron and Rumford. I come up with 3.6 million tons per year for NewVerso. So after all of the effort, cost and wasted time, NewVerso will net just an extra 100k tons capacity, have a lot more debt and the same number of mills that NewPage does right now. How does this make any sense? How is that going to translate into leverage to get some price increases? I still think it would far better to let the deal fall apart, let Verso go Chapter 11, let NewPage senior management reap what they've sown the past year, and then have NewPage buy the Verso assets out of bankruptcy and then sell the company. Too bad Mark Angelson & Co. are in such a hurry to cut and run.

Anonymous said...

Verso is on the fast track to bankruptcy and the Newpage deal, IF it happens, buys them 2 years....Verso has a 40 million lean on the Jay hydro and is selling the Bucks port power plant to a Canadian outfit....Apollo is raping Verso BIG TIME

Anonymous said...

The irony is that after this deal goes through Rumford will now probably outlive Jay. The banksters have their fangs in Verso ( and even NP) that their is little hope that a shotgun merger will save either of them individually or a s whole unit.

Anonymous said...

Glad you hold such a high regard for Rumford. BTW....Jays cost/ton is higher than Rumford's. What does that mean....Rumford makes the same product for less money. Who cares, why is that important? Just because Jay is a newer shinier jem doesn't mean they can make money. Without positive EBIDA coming in, don't be surprised if Jay doesn't last as long as Rumford. Half of Jay's issue is being able to get out of its own way to make a buck...part of that comes from the asset, the other half comes from how you use the asset. Been to both mills. Jays energy costs are high, pulp yield and quality marginal, and machines are slow given their ability. Oh yeah, your sheet tends to suck in the market too.

Anonymous said...

Energy cost, (natural gas, elect) are gonna hurt the Jay mill bad this winter.....last year Jay burned kerosene in their gas plant...Rumford is VERY lucky to have the Cogen plant, tire chips, demolition wood, railroad ties are the fuel of choice.

Anonymous said...

So Verso fleeces the NewPage coffers and imposes their 1950's style management and culture upon an 8-mill system that is currently dominating in the coated market...I think we all know how this story ends. NewVerso files bankruptcy in about a year.

MaineBoy said...

I think that the discusion of the company management styles and mill capabilities misses the central point. The market continues to shrink at 5-10% a year and neither Jay nor Rumford is in the top tier of low cost efficient producers. And they are not near sources of raw materials (except for those lovely trees), low cost energy, a modern transportation system (go PanAm Railways!)and the bulk of their customers (think Midwest). If I were a resident of Western Maine I would be thinking about what they will do with an economy that doesn't include either mill. The combined company management has already committed to move to Ohio, adding to the pressure to protect Midwest jobs over Maine jobs.

Anonymous said...

I say let all of it go idle. Forget Verso, NewPage, NewVerso and get on with either a New Chapter or New Book!

Anonymous said...

Follow the $ at the bottom of the $ well is a common demonitator looking to salvage a lot of $ they lost on both companies.