Verso Paper Corp. has cleared a regulatory hurdle that will allow it to acquire rival NewPage Holdings Inc. in a $1.4 billion deal that will make it the largest producer of glossy paper in North America.

The U.S. Department of Justice has been scrutinizing the deal for months over antitrust concerns. Combined, the two companies control more than 50 percent of the North American market for coated paper, the kind used in magazines and catalogs.

Verso said Wednesday it had reached an agreement with the justice department that requires it to follow through on a plan to sell its paper mills in Rumford and Biron, Wisconsin. The settlement mitigates the antitrust concerns and paves the way for Verso to acquire NewPage this month, one year after the plan was first announced.

Verso and NewPage are both major players in Maine’s paper industry. Verso, based in Tennessee, employs roughly 850 people at its mill in Jay. It also operates a mill in Quinnesec, Michigan, and, until earlier this month, a mill in Bucksport. The Bucksport mill produced its last roll of paper in early December.

NewPage, based in Ohio, employs roughly 700 people at the paper mill in Rumford. It also operates seven other mills, in Kentucky, Maryland, Michigan, Minnesota and Wisconsin.

Upon completion of the NewPage acquisition, Verso is expected to have about $3.5 billion in annual sales and employ about 5,800 people in eight mills across six states, according to the company.

In October, NewPage announced plans to sell the Rumford and Biron mills for $74 million to Catalyst Paper Corp. of Richmond, British Columbia. Industry analysts said at the time that the move was designed to pave the way for the justice department’s approval.

As part of the settlement process, the federal government on Wednesday filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia alleging that Verso’s proposed acquisition of NewPage would violate antitrust laws. At the same time, it filed a proposed settlement that, if approved by the court, will resolve the lawsuit and enable the transaction to proceed. The transaction remains subject to customary closing conditions.

INDUSTRY SHIFTS

The demand for coated paper has been contracting for years, leading to an oversupply, which reduces prices. The merger of Verso and NewPage is expected to create a stronger company better prepared to survive, according to industry observers.

That’s a good thing for Maine, according to John Williams, president of the Maine Pulp and Paper Association.

“I think (the merger) will be a good thing,” Williams said. “The merger should help Verso be a stronger company. The Jay mill is a good mill and, if Verso is strong, that’s a good sign that the mill will stay in operation for a long time to come.”

The Jay mill is the second largest mill in the state, behind Sappi’s mill in Skowhegan, in terms of annual capacity. It is also relatively new, having been built in 1965 by International Paper.

The wider paper industry also greeted Wednesday’s news with a collective sigh of relief.

“This removes the cloud of uncertainty that has been hanging over the North American coated paper industry for a year now,” said Chris Cook, deputy editor of Pulp and Paper Week.

“It’s great to have some resolution on this,” said Ed Sustar, a vice president at Moody’s Investors Services and the ratings agency’s chief paper industry analyst. “I think it’s been difficult for the industry as a whole with it still being in limbo.”

The demand for coated paper has been declining by approximately 6 percent a year for the past several years, according to Sustar. To keep prices stable, the paper supply would have to drop by an equal amount. In a diversified industry with lots of small players, no one company has the ability to reduce capacity and stabilize prices without completely closing a mill.

“Everyone is looking at each other and no one is proactively shutting down capacity,” Sustar said Wednesday. “When you have a dominant leader, they’re usually the one doing the heavy lifting and matching supply with demand.”

Bill Cohen, Verso’s spokesman in Maine, said the agreement boded well for the future of the company and its employees in Maine.

“Obviously, we’ve known about this acquisition for a year and we’ve done some intense planning for it and we’re looking forward to coming out the other side with a company and folks that hopefully will have a really long run at it,” he said.

Verso took some heat after announcing its plan to close the paper mill in Bucksport and lay off more than 500 employees.

“One of the things I’ve said over and over again that got lost in the Bucksport closing and the severances – as of today we still have 900 employees in the state of Maine and I think it’s important to recognize we’re here, we’re going to continue to operate and we need to spend some quiet time mending fences and getting everybody on the same page,” Cohen said. “That’s something we’re going to work hard at.”

Verso recently sold the Bucksport facility, including an attached power plant, to a subsidiary of American Iron and Metal. It’s expected that the former mill will be demolished for scrap.

Post-merger, the company will retain the Verso name and senior leadership team. On Wednesday, Verso’s stock increased nearly 6 percent, to $3.43, on news of the settlement. That continues a trend that began on Jan. 6, 2014, the day Verso announced its intention to acquire NewPage. Since then, Verso’s stock has increased 428 percent.

“The combination of Verso and NewPage will create a stronger, more stable company that will be better positioned to serve our customers and compete in a competitive global marketplace,” Verso CEO David Paterson said in a statement. “We are pleased that we were able to address the concerns of the Justice Department while preserving the benefits of the transaction for our stockholders and customers.”