Paper mills in Wisconsin and Maine sold to Catalyst
Verso Paper wraps $1.4bn acquisition of NewPage, divests two mills
For food and beverage manufacturers, the deal represents a change in the packaging supply chain landscape. However, given the paper manufacturers’ compliance with the DOJ settlement, the acquisition should not lead to higher prices for coated paper used for product labels.
On December 31, 2014, the DOJ simultaneously filed two court documents: an antitrust lawsuit against Verso and NewPage to block the acquisition, and a proposed settlement that would resolve the competitive concerns alleged in the lawsuit.
The settlement required NewPage to divest two paper mills — one in Rumford, Maine, and another in Biron, Wisconsin — in order for Verso to proceed with the acquisition.
From the US DOJ’s Competitive Impact Statement:
“Label paper is a relevant product. Label paper is typically made from coated freesheet paper. Label paper is coated on only one side; the other side is treated with an adhesive for placement on an object or surface. Label paper is principally used for two types of applications: cut-and-stack labels such as those that appear on canned food, and the face paper for pressure-sensitive labels such as those that appear on wine bottles. Label paper purchasers require a consistently high-quality label because the label is an important aspect of a product’s brand recognition and therefore sales success. The cost of the label, moreover, is typically a small fraction of the cost of the product on which the label appears. Because high-quality labels are critical to a product’s marketplace image and are a small part of the product’s cost, label paper purchasers are unlikely to substitute from label papers to other forms of printed information on containers in response to a small but significant increase in the price of label paper.”
Otherwise, the DOJ’s complaint stated, “Verso’s acquisition of NewPage would significantly increase concentration in various coated paper markets in the United States and Canada.” Without the divestiture, Verso would have had a 70% share of the the coated label paper market.
Turning a new page
Per the Justice Department’s recommendation, this week NewPage sold its Maine and Wisconsin paper mills for US$62.4m to Catalyst Paper Corp. Headquartered in Richmond, British Columbia, Canada, Catalyst had 2013 sales of about $1bn.
“With the addition of the Rumford and Biron mills, Catalyst becomes a larger and stronger company with five facilities across North America and an estimated production capacity of 2.1 million tons of paper,” Catalyst president and CEO Joe Nemeth said in a news release.
Meanwhile, by purchasing NewPage, Verso has gained six mills that collectively produce a range of coated freesheet web paper, coated groundwood paper, and label paper.
Prior to its purchase of NewPage, Verso operated two paper mills and had sales of about $1.4bn in 2013. Post-acquisition, Verso will have approximately $3.5bn in annual sales and about 5,800 employees in eight mills across six states, according to company officials.
Broadening its horizons
“The combination of Verso and NewPage creates a stronger, more stable company with an effective strategy to weather industry headwinds and reduce operating costs,” said David J. Paterson, Verso's president and CEO.
Verso executives anticipate substantial cost synergies over the next 18 months. “With the complementary asset base and shared strategic focus on coated paper manufacturing, this acquisition represents a relatively low integration risk, so we remain confident that we can deliver the synergies within the expected timeframe,” Paterson said in a news release.
Reflecting its intention to broaden its business platform and seek alternative revenue streams to augment its core printing papers, specialty papers and pulp segments, the company has changed its name from Verso Paper Corp. to Verso Corporation.
The senior leadership team will remain unchanged, however. Paterson will continue as president and CEO, and all of Verso’s executives will retain their pre-acquisition responsibilities.
Historical note: Verso had sought to acquire NewPage once before, in July 2012. However, Verso abandoned that plan in September 2012 (see article).
