Verso Changes Course -- Why?

Only three weeks after Verso Paper’s CEO said acquiring NewPage was the key to its future, Verso announced it no longer wants to buy its rival. Why the sudden change of heart?

In a mid-August interview with The (Memphis) Commercial Appeal, Verso CEO David J. Paterson said that the company’s key strategy is acquiring ailing companies “to get the cost reductions we can't get on our own.” NewPage, which is in Chapter 11 bankruptcy reorganization, is Verso’s only publicly announced target.

But last week Paterson issued a statement saying, “After careful analysis, we believe it is in the best interests of our company and its stakeholders to focus on the many other opportunities for Verso, including internal growth projects and other potential strategic alternatives.”

Verso's new tack is something of a mystery. Chip Dillon, a long-time forestry industry analyst, announced yesterday that his Vertical Research Partners is dropping coverage of Verso because the company’s future is so unclear. He sees “the restructuring of Verso’s debt as inevitable” but is not sure how or when that will happen.

Among the possible reasons that Verso is no longer courting (or stalking) NewPage: 

• Hard to get: Verso’s latest move may be a negotiating ploy to wrest a better deal out of NewPage. 
• We’ve seen this movie before: Paterson was CEO of Bowater, the continent’s second-largest maker of newsprint, when it merged in 2007 with the #1 maker, Abitibi-Consolidated. The combined AbitibiBowater went into Chapter 11 a year and a half later. Wall Street isn’t exactly looking for a sequel to that saga. 
• Throwing in the towel: Verso may have concluded its proposed merger with NewPage is hopeless. Many of NewPage’s stakeholders want it to emerge from Chapter 11 bankruptcy protection as an independent company rather than being saddled with Verso’s debt. 
• A new chapter: Facing the prospect of competing with a post-bankruptcy, deleveraged NewPage, Verso may have decided that it too should join the debt-restructuring party. It wouldn’t do much for the company’s credibility on Wall Street to be talking acquisition one day and Chapter 11 the next. 
• Another target: The Commercial Appeal article indicated Verso might have its eye on acquiring more than one ailing rival. Has it stopped pursuing NewPage because it needs to conserve what little capital is has to pull off a different acquisition or merger? 
• A suitor of its own: Verso, with a market cap of less than $100 million, might be a good buy for someone with the financial strength to take on, and refinance, its high-cost debt. Finnish giant UPM? A growing Asian paper company looking for a foothold in North America? Or maybe Resolute Forest Products, the post-bankruptcy reincarnation of AbitibiBowater that has recently attracted a huge investment from “the Warren Buffett of the North”. 

Related articles:

• Sartell Shutdown Will Cost Verso Dearly  
• Did Verso Come To Purchase NewPage Or To Bury It?  
• NewPage's Fraudulent Deals Started in 2007, Creditors Claim