Paper Industry Perspective
4th Quarter 2014
Verso acquires NewPage
By Jesse Marzouk
Approximately one year
after it was announced, Verso
Paper Corp.’s acquisition of
NewPage Corp. was given final
regulatory approval and consummated
on January 7, 2015.
The acquisition was done in an
attempt to consolidate the
North American coated paper
market, as it has faced significant
demand destruction amid
electronic substitution and competition
from lower-end grades, such
as supercalendered paper (SC).
The combined entity, which has
been renamed Verso, will operate
eight mills with sales of $3.5 billion
annually. Verso now maintains
approximately 24% of North American
capacity for coated mechanical
paper (CM) and 52% of North
American capacity for coated
freesheet paper. Its share in the
CM market was diluted after the
U.S. Department of Justice forced
Verso to sell two mills as a condition
of the acquisition. The two
mills were purchased by Catalyst
Paper, which now controls approximately
31% of CM capacity in
North America.
While some are hopeful that
the merger will lead to pricing
power in the market, Hilco believes
that it will do little to change
prices. Price increases for CM
paper were recently announced,
but they were on the back of mill
closures that resulted in an approximate
13% reduction of North
American capacity for CM and SC.
Over the last few years, the only
times that prices for publication
papers increased was when producers
shut a significant (greater
than 10%) percentage of capacity
within a certain grade. This was
the case when producers closed
approximately 10% of capacity in
the uncoated freesheet (UFS)
market at the end of 2013. Prices
for UFS rose approximately $80
per ton, but this was less than the reduction in prices that occurred
over the prior few years.
A similar fate is likely for producers
of CM paper, who will enjoy
the benefits of higher prices in
2015, however, they almost certainly
will be less than prices were
a few years earlier. Producers are
hesitant to raise prices too much
from fear of substitution from other
grades and further demand destruction.
To compound the matter
for North American producers,
the strength of the U.S. dollar
against the euro and other currencies
is going to attract imports into
a market that is already weak.
Specifically for producers of CM
and SC, Europe is a significant
producer of SC and is expected to
take advantage of higher prices in
North America this year.
Jesse Marzouk is a vice president and forestry products specialist. He has
appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies
involved in manufacturing and distribution. Jesse received his MBA in finance from
Kellogg School of Management at Northwestern University, and has a degree in
finance and accounting from Indiana University.