Prospects dimmed even further on Friday for a proposed merger between papermakers Verso Paper Corp. and NewPage Holdings, which employ a combined 2,250 workers at three paper mills in Maine, according to a document filed Friday with the U.S. Securities and Exchange Commission.
The filing includes a letter sent by Ohio-based NewPage to Tennessee-based Verso stating that it objects to the company’s request to back out of a key provision of the proposed deal that would allow NewPage to restructure a significant amount of its debt.
Companies restructure debt to reduce the cost of debt-service payments, such as lowering the interest rate, extending the repayment period, or both.
In the letter, NewPage Chairman Mark Angleson wrote that if Verso is unable to comply with originally agreed-upon conditions that include debt restructuring as part of the deal, “we will re-evaluate the merger and consider all our options.”
Verso, which owns paper mills in Bucksport and Jay, issued a proposal in early January to acquire NewPage, which owns a mill in Rumford, in a $1.4 billion deal that would deliver cash to the current owners of NewPage and restructure the debts of both companies.
Under the proposed deal, NewPage would receive $250 million in cash and $650 million in new debt to be issued at the closing of the deal. NewPage also would get as much as 25 percent of Verso’s stock under certain circumstances. Verso also would refinance $500 million of NewPage’s debt.
But the deal has been in jeopardy since late January, when Verso executives told NewPage in a letter filed with the SEC that they were having difficulty convincing investors to buy into a key financing component of the proposed merger.
As a result, Verso has proposed eliminating or amending the “debt exchange” portion of the deal, which would allow both companies to restructure existing debts.
In his letter to Verso, Angleson said it is unlikely NewPage’s investors would accept the amended proposal.
“The NewPage board, in deciding to recommend the merger to its stockholders, gave great weight to the deleveraging nature of the transaction and the debt reduction to be achieved by the Exchange Offers and Consent Solicitations, and this remains a fundamental element of the transaction from NewPage’s perspective,” he wrote. “We do not consent to Verso’s request for a waiver or amendment, and you should not assume that we will waive the Exchange Offer Condition or that we will provide any flexibility whatsoever with respect to debt reduction in the future.”
Neither Verso nor NewPage executives could be reached for comment Friday evening.
The proposed merger comes at a difficult time for paper mills across the country and particularly in Maine, the nation’s second-largest producer of paper. New technologies have cut into the market for printed magazines, international competition has escalated and the economy has remained lackluster.
Verso Paper produces 930,000 tons of pulp annually and 1.5 million tons of paper for magazines, catalogs and commercial printing such as advertising brochures and annual reports. It has 2,200 employees nationally, including 1,400 in Maine.
NewPage Holdings’ mills produce about 3.5 million tons of paper a year, including coated and specialty papers for magazines, catalogs, books, coupons, inserts and direct mail, and the specialty paper for beverage bottle labels and food packaging.
NewPage Holdings now has about 850 employees in Maine, but has announced that it will idle one paper machine in Rumford and reduce its workforce to about 700.
Combined, Verso Paper, based in Memphis, and NewPage Holdings, based in Miamisburg, Ohio, would have 11 manufacturing facilities and annual sales of about $4.5 billion.
Staff Writer Jessica Hall contributed to this story.
J. Craig Anderson can be contacted at 207-791-6390 or: