Two paper companies with plans to merge into an industry juggernaut are betting that federal regulators won’t block the deal on antitrust grounds if one of them first sells off a couple of mills, including one in Rumford.

The proposed sale of the Rumford Paper Co. mill to a Canadian firm is part of an effort by mill owner NewPage Holdings Inc. to prevent the U.S. Department of Justice from denying its planned merger with Verso Paper Corp., analysts said.

The sale most likely would pave the way for approval of the merger, they said, adding that new ownership of the Rumford mill would strengthen job security in the community and within an industry that has been hard hit this year. About 700 people work at the Rumford mill, and another 900 at Verso’s mill in Jay.

In addition to the Rumford mill, NewPage also plans to sell a mill in Biron, Wisconsin, to Catalyst Paper Corp., based in Richmond, British Columbia. The sale price for the two mills is $74 million.

Verso, a publicly traded company based in Tennessee, wants to buy NewPage, a privately held company based in Ohio, through a complex, $1.4 billion deal that would involve cash, debt refinancing and Verso stock. Under the proposed transaction, NewPage would continue to operate under its own name as a subsidiary of Verso.

The combined company would be the dominant U.S. producer of coated paper, the glossy kind used in magazines, catalogs and other publications. It would control more than 50 percent of the market, which has raised concerns by federal regulators that it would have an unfair competitive advantage.

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Verso announced last month that it plans to close its Bucksport mill on Dec. 1. That action coupled with the sale of the two NewPage mills would all but assure regulatory approval for the merger, pulp and paper market analyst Jesse Marzouk said.

The mill closure and divestitures would bring the new, combined company’s total market share down below 50 percent, which he said is a key threshold in this antitrust case.

“This basically seals the deal,” said Marzouk, director of operations at Northbrook, Illinois-based Hilco Global, a financial services company.

Verso filed a required disclosure Friday with the U.S. Securities and Exchange Commission that said NewPage is proposing to sell the two mills “in order to address potential antitrust considerations related to the NewPage acquisition (by Verso).”

According to a news release from Catalyst, the deal is contingent on successful completion of the merger between NewPage and Verso, the top rivals in the coated-paper market.

If approved by Department of Justice regulators, the merger is expected to be completed by the end of the year.

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Verso President and CEO Dave Paterson has attributed the planned closure of the Bucksport mill on Dec. 1, which will put more than 500 people out of work, to the facility’s lack of profitability in recent years.

The Rumford mill’s sale to Catalyst would effectively end NewPage’s presence in Maine.

However, Marzouk said the mill sale to Catalyst is a good development for its estimated 700 workers and the Rumford-area economy because it cements the mill’s future operation.

“I think they’re buying them to operate them,” he said about the two NewPage mills. “They’re not going to shut them down.”

Lloyd Irland, a pulp and paper industry consultant based in Wayne, agreed that the planned acquisition is good for Rumford.

“I think it has to be, if they’re going to be owned by a company that wants to be there,” said Irland, owner of The Irland Group.

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Catalyst said in its news release that buying the mills would benefit the company in various ways. Foremost, it would boost Catalyst’s total production of coated paper by about 65 percent to nearly 1 million tons per year. The company also would be able to reach new markets and save money by distributing its overhead costs over a larger production base, it said.

“Our acquisition of these U.S. pulp and paper mills, once complete, will support our efforts to improve our balance sheet and enhance the company’s long-term competitiveness,” Catalyst President and CEO Joe Nemeth said in the release.

Irland said having production facilities in the United States is generally good for Canadian paper makers. The supply of industrial timber in interior British Columbia has been largely diminished, he said, and having a physical presence in the U.S. alleviates concerns about future trade barriers that could make it more expensive to ship products from Canada to the U.S.

“They want to be in our market, and not just shipping into it,” he said.

NewPage, Verso and Catalyst operate in a shrinking market that has been devastated by the print publishing industry’s decline. That fact is evidenced by the rock-bottom price of $74 million NewPage is asking for its two mills, Marzouk said.

“They’re basically getting the mills for almost nothing,” he said.

Declining demand for paper and high energy costs associated with its production have hobbled Maine’s paper making industry this year. In January, the Great Northern Paper mill in East Millinocket shut down and its parent organization filed for bankruptcy in September. In August, Old Town Fuel & Fiber closed its operation. On Oct. 1, Verso announced the impending closure of its Bucksport mill. More than 900 paper workers have lost, or will lose, their jobs from the closures.


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