Verso to Buy Paper Maker NewPage in $907 Million Deal

Verso Paper Corp., a maker of coated paper used in magazines, agreed to acquire NewPage Holdings Inc. in a transaction with a value of at least $906.9 million to better navigate the shrinking market for print publications.

NewPage equity holders will receive $900 million, including $250 million of cash, most of which will be paid as a special dividend, and $650 million of new Verso notes to be issued at closing, the companies today said in a statement. They also get Verso stock representing at least 20 percent of outstanding shares. Refinancing a $500 million NewPage loan brings the deal value to $1.4 billion, the companies said.

The combined company would control about half the North American market for the supply of paper used in magazines and photocopiers, said Ed Sustar, a Toronto-based credit analyst at Moody’s Investors Service. That would help it better cope with a 5 percent annual drop in magazine paper demand as more content is delivered through tablets and e-readers, he said by phone today.

“We continue to face increased competition from electronic substitution for print and international producers,” Verso Chief Executive Officer David J. Paterson said in the statement. “As a larger, more efficient organization with a sustainable capital structure, we will be better positioned to compete effectively.”

The combined company would have 11 plants in six states generating about $4.5 billion of revenue, according to today’s statement.

Reorganization Plan

NewPage, based in Miamisburg, Ohio, filed for bankruptcy protection in 2011 as it struggled with a shift of readers online. It won court approval for a reorganization plan in December 2012.

Verso, based in Memphis, Tennessee, was in talks to buy NewPage in 2012. The deal fell apart because of bondholder objections, said Hoai Ngo, a New York-based analyst at Oppenheimer and Co.

The deal is more likely to close this time because it has the unanimous support of both boards and the companies have each agreed to pay a $27 million breakup fee if they back out, Ngo said.

Verso bonds would benefit from lower leverage after the combination, as NewPage has little debt after shedding obligations during bankruptcy, he said. The combination will result in $175 million of pretax cost cuts in the first 18 months, the companies said.

Better Terms

Holders of Verso’s 8.75 percent notes would get 47 cents on the dollar and holders of the 11 3/8 notes would get 57 cents on the dollar under an exchange offer associated with the transaction, the company said in a separate statement. The exchange also would give bondholders higher interest rates with extended maturities.

Bondholders may be able to negotiate better terms to win their approval given that there appear to be few other obstacles to the merger, Ngo said.

Verso almost quintupled to $3.21 at the close in New York, the largest gain since the shares began trading in 2008.

NewPage investors will get 20 percent to 25 percent of Verso shares, so the deal price will change to reflect the final allocation as well as the share price at closing, today’s statement showed.

Second Half

The transaction is expected to close in the second half, pending regulatory approvals, the companies said.

Five investors accounted for 61 percent of NewPage equity ownership, led by Franklin Resources Inc. with a 14 percent stake, the company said in a May 31 regulatory filing. The others were JP Morgan Asset Management, Oaktree Capital Management, Goldman Sachs Group, and Centerbridge Partners.

Verso was advised by Evercore Partners Inc., Barclays Plc, Credit Suisse Group AG and Palisades Capital LLC, and its legal counsel was Kirkland & Ellis LLP, Morgan, Lewis & Bockius LLP, and Paul, Weiss, Rifkind, Wharton & Garrison LLP. NewPage was advised by Goldman Sachs Group Inc., and its legal counsel is Sullivan & Cromwell LLP.

The value of the NewPage deal was calculated based on the

53.2 million shares of Verso that were outstanding as of Oct. 31, according to data compiled by Bloomberg.

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