Bankrupt NewPage Rejects $1.4B Merger with Verso Paper

NewPage, which employs 285 at its Duluth paper mill, said that the proposed merger “posed significant downside risks to its stakeholders, employees, and business.”

The operator of a large Duluth paper mill on Tuesday shot down a proposed merger with a competitor that operates another Minnesota mill.

Miamisburg, Ohio-based NewPage Corporation—which owns the Duluth mill and filed for Chapter 11 bankruptcy protection in September—said in a press release that it has rejected a $1.43 billion merger proposed by Verso Paper Corporation.

A group of NewPage’s secondary creditors brought the merger proposal before a group of its primary creditors. Under the terms of the deal, Verso—a Memphis, Tennessee-based company whose Sartell paper mill was damaged in a May explosion and fire—offered NewPage’s first-lien note holders $1.08 billion of new Verso notes, $150 million of Verso stock, and $200 million in cash. It also said it would pay NewPage’s debtor-in-possession financing and give NewPage’s secondary note holders an unspecified amount of Verso stock.

Verso’s stock price closed up 48 percent Tuesday following the announcement of its merger proposal.

“Verso believes that a combination with NewPage would create a stronger business in the global coated and supercalendered paper industry because of the material cost savings that would be achieved,” the company said in a press release. “Verso also believes that a combination with NewPage would provide a compelling option for a restructuring in that it would afford NewPage’s first-lien note holders a very attractive recovery, while at the same time treating fairly the other NewPage constituencies, including its employees, other creditor classes, and customers.”

NewPage, however, said Tuesday: “After thoroughly evaluating this proposal, NewPage determined that the combination posed significant downside risks to its stakeholders, employees, and business. NewPage has also been advised that the first-lien note holder group did not support the proposal. Accordingly, NewPage does not anticipate further discussions regarding this proposal.”

NewPage, which has been hit by rising materials prices and a reduced demand for its paper products, reported $3.5 billion in 2011 revenue. In addition to the Duluth mill, the company owns paper mills in Kentucky, Maine, Maryland, Michigan, and Wisconsin.

NewPage on Tuesday released a series of documents detailing its discussions with note holders and creditors as it seeks to finalize a restructuring plan. Among other things, the documents indicate that the company has struck a deal with the unions that represent many of its employees, through which the company will freeze some pension plans and shift workers to a health care plan with higher deductibles and out-of-pocket costs.

However, NewPage spokesman Matt Christenson told Twin Cities Business on Thursday that the Duluth plant is non-union and therefore not affected by those contract changes. The Duluth facility employs 285, and no layoffs have occurred there since NewPage filed for bankruptcy, he said.

Verso, meanwhile, reported a net loss of $137 million, including restructuring costs, on revenue of $1.7 billion in 2011. Following the May 28 explosion and fire at its Sartell mill, which killed one factory worker and injured four others, the company said last month that the damage would take “several months” to repair. Subsequently, “a clear majority of the hourly and salaried workers” were reportedly laid off from the mill.

Before the layoffs occurred, Verso employed 259 in Sartell, making it the city’s second-largest employer.