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From Antitrust Law Daily, December 31, 2014

Paper companies get U.S. approval for merger on last day of busy 2014

By Jeffrey May, J.D.

The Department of Justice Antitrust Division wrapped up an active 2014 with its 11th merger challenge of the year. Today, the Antitrust Division cleared the combination of paper companies Verso Paper Corp. and NewPage Holdings Inc., subject to the divestiture of two NewPage mills. The Antitrust Division has filed a complaint in the federal district court in Washington, D.C., challenging the proposed deal. In addition, the government filed a proposed final judgment intended to resolve the competitive concerns alleged in the lawsuit (U.S. v. Verso Paper Corp., Case No. 1:14-cv-02216).

Verso and NewPage are two of the largest producers of coated paper and label paper in North America, according to the Justice Department. The complaint alleges that, without the proposed divestitures, the planned acquisition would likely lead to anticompetitive effects in the North American markets for coated publication paper and label paper.

The companies produce two types of coated publication paper: coated freesheet web paper (used in web printing applications) and coated groundwood paper (used primarily for the interior pages of magazines and catalogues and other medium-quality printing applications). They also produce label paper, which is used to make labels for certain consumer goods, including canned foods or wine bottles. In limiting the market to the United States and Canada, the government noted that foreign producers were limited by commitments to local markets; transportation costs; customer product specifications; and currency fluctuations.

In January, Verso announced its intention to acquire NewPage for approximately $1.4 billion in an effort “to create a stronger coated paper producer” that would be able to respond to “increased competition from electronic substitution for print and international producers.” According to the company, Verso's paper products are used primarily in media and marketing applications, including magazines, catalogs, and commercial printing applications. NewPage's portfolio of paper products includes coated, supercalendered, and specialty papers. Its products are used in commercial printing to create corporate collateral, magazines, catalogs, books, coupons, inserts, and direct mail, as well as in specialty paper applications including labels and packaging.

Proposed final judgment. Under the terms of the proposed final judgment, Verso would be required to divest NewPage’s Rumford, Maine, and Biron, Wisconsin, paper mills to Canadian forest-products company Catalyst Paper Corporation. If the defendants are unable to complete the sale to Catalyst, then they must sell the divestiture mills to an alternative, independent buyer approved by the United States. The mills must be divested in such a way as to satisfy the Justice Department that the operations can and will be operated as a viable, ongoing business that can compete effectively in the coated freesheet web, coated groundwood, and label paper markets.

In addition to including divestiture obligations, the proposed consent decree provides the purchasers of the Biron mill with the option to procure softwood kraft pulp from Verso’s Wisconsin Rapids mill through a pulp supply contract so that the purchaser is able to sell coated groundwood products at competitive prices. The proposed final judgment also provides that the purchaser of the Biron mill will have the option to procure waste and wastewater disposal services from Verso.

Increased merger activity in 2014. As merger activity ticked up 2014 from its lows during the financial crisis, the Justice Department challenged more deals than in recent years. Among them were mega-deals, such as Tyson Foods Inc.'s $8.5 billion acquisition of The Hillshire Brands Company, as well as a flour milling joint venture between ConAgra Foods Inc., Cargill Inc., CHS Inc., and Horizon Milling LLC. Each of the 11 merger challenges filed in 2014 was resolved by consent decree.

The Justice Department filed only six merger challenges in 2013. That year saw some contested cases, most notably the government's ultimately successful court challenge to Bazaarvoice Inc.’s June 2012 acquisition of PowerReviews Inc.

In addition, in 2013, the government brought suits to block Anheuser-Busch InBev's acquisition of Grupo Modelo and the $11 billion combination of US Airways and American Airlines without proposed settlements. These cases were later resolved by consent decree.

It’s unclear whether merger activity will continue to increase in 2015, and whether there will be a corresponding increase in the number of U.S. actions. However, the Justice Department will likely weigh in on Comcast Corp.’s proposed $45 billion acquisition of Time Warner Cable, Inc. That deal, which was announced in February 2014, is still winding its way through the review process at the Antitrust Division and Federal Communications Commission.

Attorneys: Karl D. Knutsen for U.S. Department of Justice. Jonathan M. Rich (Morgan, Lewis & Bockius LLP) for Verso Corp. Daryl A. Libow (Sullivan & Cromwell LLP) for NewPage Holdings Inc.

Companies: Catalyst Paper Corp.; NewPage Holdings Inc.; Verso Paper Corp.

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