Verso moves appeased investors’
WISCONSIN RAPIDS - The reasons Verso Corp. is returning a lot of cash to shareholders while the Wisconsin Rapids mill sits idle span three years and a pandemic.
The publicly-traded company is trying to chart a path to profitability through a changing paper market that’s trending away from the graphic paper the mill produces. Along the way, it has changed CEOs multiple times, sold two mills, idled three more and rejected purchase offers from major shareholders who then gained control of three of Verso’s seven board seats in December.
All of this is important because it helps explain why Verso has returned $130 million in cash to shareholders this year while more than 1,000 workers remain laid off and wondering about their futures in Wisconsin Rapids and Duluth, Minnesota.
Verso on July 30 indefinitely halted production at both the Wisconsin Rapids and Duluth paper mills, laying off about 900 workers in Wisconsin Rapids alone. The company shut down the mills due to declines in demand for graphic paper as retail, sports, entertainment and tourism industries reduced advertising in the early months of the COVID-19 pandemic.
The company had been exploring alternatives for both mills that included restarting production if the market improved. But during a Nov. 9 earnings call, Verso Interim President and CEO Randy Nebel confirmed it would pause its efforts to sell the Wisconsin Rapids mill.
“The interest was not what we think will be available when times are better,” Nebel told investors.
Understanding what has happened in other communities where mills have been idled and the future opportunities in Wisconsin Rapids gives community leaders, economists and paper industry analysts optimism that this is not the end of the road for the Wisconsin Rapids mill.
Verso, and some of its largest investors, recognized the company needed to adapt to market conditions as far back as fall 2017.
That year, the company hired an investment bank to help it explore the sale of some mills and the conversion of others to new product lines with the aim of increasing profits and improving the company’s stock value. Private equity firms that owned Finch Paper and Twin Rivers Paper Co. disclosed ownership of roughly 9% of Verso’s stock in November 2017 and by December presented their first offer to buy Verso to its executives.
Lapetus Capital II LLC, Atlas Holdings LLC, Blue Wolf Capital Partners LLC, the private equity firms, offered $445 million, or about $19.50 per share, at one point during negotiations that lasted through 2018 and into 2019.
Verso declined all offers and in November 2019 announced the sale of its paper mills in Stevens Point and Jay, Maine, to Pixelle Specialty Solutions LLC for about $400 million in cash and assumed pension obligations. It took the extra step of putting the sale up for a vote of shareholders at its annual meeting
earlier this year.
Before that vote, Lapetus, Atlas and Blue Wolf on Dec. 31 launched an effort to convince shareholders to back three of their candidates for Verso’s board of directors and to abstain from voting on the Pixelle sale. The firms claimed Verso wasn’t fast enough to adapt to the changing paper market and wasn’t providing enough value to shareholders. Verso countered that its leadership had the industry experience to adapt and that the battle for board seats was a hostile move born out of the rejected acquisition attempts.
The parties compromised just before the board met: Verso endorsed the investors’ three candidates and one, Sean T. Erwin, was appointed chairman of the board. The investors backed the Pixelle sale and Verso agreed to return up to $280 million to shareholders.
Verso has done so in two ways: dividends paid to stock holders and stock buybacks. In a buyback, a company purchases shares on the market to reduce the number of outstanding shares in order to boost the share price and earnings per share, both of which are attractive metrics to investors.
The company paid a one-time, $3per-share dividend on Sept. 28 that returned $100 million to shareholders and announced ongoing quarterly dividends of 10 cents-per-share. Verso also spent $22.4 million this year to buy 1.6 million shares of the company’s stock at an average price of $14 per share. Verso stock closed at 11.37 Tuesday, up 40 percent for the month, but still down 36 percent for the year.
The moves, while attractive to shareholders, have not sat well with workers,