Recent talks between Apollo and Cerberus, which owns NewPage, about the papermaker’s debt were characterized in some media outlets as merger talks. Apollo has bought up a majority of a NewPage debt issue, giving it significant leverage over the largest maker of coated and supercalendered papers in the U.S.
“There are reports that Verso and NewPage have discussed combining is some way. I would be very surprised if this happened anytime soon,” Verle Sutton wrote in the February issue of The Reel Time Report (available only through subscription from Forestweb), published yesterday. “Combining a debt-laden company with a super-debt-laden company does not make sense for the debt-laden company. Verso needs to try to stay out of bankruptcy, not duplicate the results of the Abitibi and Bowater merger.”
Verle said Dead Tree Edition could quote him on the subject as long as his comments weren’t edited. I'm happy to oblige:
“Any agreement that Apollo and Cerberus might find attractive would almost certainly not be a good deal for other holders of NewPage and Verso debt. For example, if Apollo tries to convert its debt in NewPage to equity, it would strive for an equity position that would be disproportionate to the percentage of debt it controls; otherwise, it would not make sense for them. Why would the other lenders agree to that?”
“I always wish only the best for all of the paper companies and their customers, but I am not optimistic. Companies don’t usually get out from under such heavy debt — except through bankruptcy. The lenders may eventually agree to some kind of reorganization, but why should they…and why now? The lenders are receiving high interest payments, and, when the payments stop or the debt matures, they will own the company. Why trade some debt for equity now when they can have it all later?
“If NewPage does eventually move through Chapter 11, the company coming out of bankruptcy will be very powerful, and unburdened of significant debt. At that point, why would it agree to merge with Verso and get stuck with the latter’s debt? It would be like the current, nearly debt-free AbitibiBowater buying Catalyst and assuming another $700 million in debt. That is not going to happen.”
In late January, merger speculation was also pooh-poohed by securities analyst Phillip Wirtz of Odeon Capital Group LLC in comments to The Chronicle Herald of Halifax, NS for an article that is no longer available online. (Verso operates entirely in the U.S., and NewPage is mostly in the U.S., but as far as I can tell The Chronicle Herald is the only daily newspaper to have written about this story. Are there no newspapers in Dayton, Memphis, Wisconsin, or Maine?)
“I wouldn’t read too far into that,” Wirtz said of speculation about the supposed Apollo-Cerberus meeting.
For more information on NewPage's debt problems and the relationship, or lack thereof, between North America’s two largest producers of coated paper, see:
- NewPage Gets Some Breathing Room explains why the terms of a NewPage debt issue give Apollo so much leverage over the company.
- NewPage, Verso Owners Reportedly Discussing a Deal
- Is Bankruptcy Inevitable for NewPage? Still a valid question.
One of the key reasons Verso won't merge with New Page is that Apollo knows there are only 3 or 4 viable mills in the New Page portfolio worthy of a long term investment. And one of the reasons the newspapers in Maine, Wisconsin, and Ohio aren't covering the story is the unfortunate reality of the situation - nothing good will come to the milltown communities when bankruptcy eventually hits.
ReplyDeleteHave you ever seen a company that Cerberus owned that didn't claim Chapter 11.. Look at all of the past company's they have owned..
ReplyDeleteThey have removed all of the money from New Page, when they made Escanaba Paper Company Inc.. They sold off the land and made their money out of the company and could careless about making paper.
It all could not happened to a better management group.
Verle, when are you going to find time to blog again? Absolute Truths has been absolutely empty.
ReplyDeleteThese merger comments make a lot of sense. FYI a feature story about the Verso Paper mill in Bucksport, Maine was recently published in Maine Ahead, http://www.maineahead.com/?s=verso, Maine's Business and Executive Lifestyle magazine. The mill appears to be doing quite well after innovations to the facility.
ReplyDeleteIn fact, Maine is producing more paper now than ever, just more efficiently and with fewer workers. Maine also has more tree growth than in the last 100 years.
The University of Maine at Orono's AEWC Advanced Stuctures and Composites Center under the direction of Habib Dagher is creating remarkable new uses for fiber materials that are changing engineering concepts in many ways.
Finally, Maine certainly has numerous fine newspapers, Portland Press Herald, Bangor Daily News, Lewiston Sun Journal, etc.
I know individuals who work for New Page and am very familiar with their operation in Maine. The mill in Rumford (Maine)is one of the most efficient mills in their portfolio and has the lowest cost per ton for production. It is because of this that their mill in Whiting (Wis)was closed and production shifted to Rumford. Although a fairly old mill ( built in the late 1800's) very little of the original mill remains. Boise Cascade in the late 70s and early 80s nearly rebuilt the mill from the ground up. They invested millions into this facility and its still reflected when you see it on the ground. Its not a decrepit shabby facility but instead is fairly modern looking. Compared to Verso's mill in Jay Maine it looks rather new.
ReplyDeleteI PERSONALLY HAVE WORKED AT THE RUMFORD MILL AND NOW WORK FOR THE VERSO MILL IN JAY AND CAN TELL U THAT THE TWO MILLS ARE NIGHT AND DAY. tHE VERSO MILL IN JAY IS MODERN AND EFFICIENT,WITH MAJOR UPGRADES AND REBUILDS IN THE LAST 10 YEARS.TH RUMFORD MILL HAS 3 SMALL SLOW MACHINES AND A AND ONE BIG MACHINE THAT HAVE NOT HAD ANY UPGRADES IN DECADES.NO COMPARISON
ReplyDeleteLooks like Verso wanted to do something but NewPage is not going for it at this time.
ReplyDeleteHaving worked in the Rumford Mill I can tell you from all the company slides I saw the Rumford mill was the second highest in cost peer ton after the Whiting closure (Wickliffe was the highest cost per ton at the time).
I know this is an old post, but clear the air a bit here. Yes, Jay has been well invested in the front end. It is a nice mill. Rumford has been marginally invested in the front end. One of the machines you speak of is gone. The remainder are small, granted, but so arent Jays. Also, Jays machines are crawling. Those arent fast machines by any stretch.
ReplyDelete