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Verso Paper to buy NewPage

Verso Paper Corp. announced Monday that it will buy competitor NewPage Holdings Inc. in a $1.4 billion deal that shakes up the U.S. paper industry, including a mill in Duluth.

Verso Paper Corp. announced Monday that it will buy competitor NewPage Holdings Inc. in a $1.4 billion deal that shakes up the U.S. paper industry, including a mill in Duluth.

The combined company will have sales of about $4.5 billion and 11 manufacturing facilities in six states, including the NewPage paper mill and recycling center in West Duluth, which has 275 employees.

The Duluth mill, which began operations in 1987, makes paper used for catalogs, magazines, advertising inserts and other commercial products. It also has a recycled pulp mill that produces quality pulp from recovered paper.

Kalee Hermanson, spokeswoman for NewPage operations in Duluth, said there has been no discussion of any closures or cutbacks as a result of the sale.

"There are no plans to close any of the NewPage or Verso mills as part of the transaction," Hermanson told the News Tribune on Monday.

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The transaction, which already has been unanimously approved by the boards of directors of both companies, is expected to close in the second half of 2014, subject to regulatory approvals.

David J. Paterson, Verso's president and chief executive, said the company is making the acquisition to form a more cost-efficient company that can cope with increasing pressure from electronic media.

"The combination of Verso and NewPage will create a stronger business that is better positioned to serve our customers and compete in a competitive global marketplace," Paterson said in a statement. "We continue to face increased competition from electronic substitution for print and international producers, but as a larger, more efficient organization with a sustainable capital structure, we will be better positioned to compete effectively and deliver solid results despite the industry's continuing challenges."

Paper industry analysts said global demand for coated paper from magazines and catalogs has been declining as lower readership and advertising in print media force publishing and media groups to move online.

The Verso-NewPage deal is "sort of like two very weak companies holding each other up," Vertical Research Partners analyst Chip Dillon told Reuters.

Verso, which makes paper for media and marketing firms, had revenue of $1.5 billion in 2012. NewPage, which filed for Chapter 11 bankruptcy in 2011 and came out of bankruptcy in 2012, reported $3.1 billion in net revenue last year. Verso is based in Memphis, Tenn. NewPage is based in Miamisburg, Ohio. It's not clear yet where the new firm will be based.

NewPage shareholders will receive $250 million in cash and $650 million in notes. Verso will also take on $500 million in NewPage debt, Verso said Monday.

NewPage shareholders will also receive a roughly 20 percent stake in Verso. The implied equity value, even with Monday's run-up in share value, is less than $30 million.

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"Essentially the deal is all debt, there is no real equity involved here," Dillon said.

Reuters contributed to this report.

Related Topics: WEST DULUTH
John Myers reports on the outdoors, natural resources and the environment for the Duluth News Tribune. You can reach him at jmyers@duluthnews.com.
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