BillerudKorsnäs to acquire Verso to ignite growth in North America

BillerudKorsnäs has entered into a merger agreement with Verso Corporation (Verso) under which BillerudKorsnäs has agreed to acquire Verso, a leading producer of coated papers in North America, for a purchase price of approximately USD 825 million in cash. Verso’s Board of Directors, acting upon the recommendation of a special committee, has unanimously approved, and resolved to recommend the transaction to Verso’s shareholders. The transaction is expected to close in the second quarter of 2022.

• BillerudKorsnäs has entered into an agreement to acquire Verso for a purchase price of approximately USD 825 million in cash, corresponding to USD 27.00 per share.
• Verso is a leading producer of coated papers in North America with reported net sales for the last twelve months ended 30 September 2021 of USD 1 264 million and adjusted EBITDA of USD 158 million.
• The purchase price corresponds to an enterprise value / adjusted EBITDA multiple of approximately 6x for the last twelve months ended 30 September 2021. The acquisition will immediately be accretive to earnings per share and create significant shareholder value over time with a more profitable product mix.
• BillerudKorsnäs will build one of the most cost-efficient and sustainable paperboard platforms in North America by converting some of Verso’s assets into paperboard machines with an estimated capex of up to SEK 9 billion.
• The acquisition and transformation will be financed through a combination of a rights issue of up to SEK 3.5 billion, additional debt and operating cash flow.
• The acquisition is expected to close in the second quarter of 2022, subject to the approval of Verso’s shareholders as well as the receipt of applicable regulatory approvals and satisfaction of other customary closing conditions.

Strategic rationale: Profitable and sustainable revenue growth

The acquisition of Verso is fully in line with BillerudKorsnäs’ strategy to drive profitable growth in paperboard, and the ambition to expand into North America. BillerudKorsnäs aims to build one of the most cost-efficient and sustainable paperboard platforms in North America by converting several of Verso’s assets into paperboard machines while maintaining its position as quality and cost leader in speciality and coated woodfree paper.

Verso’s strategic assets are positioned in a region with abundant and cost-effective fibre supply suitable for production of premium packaging materials. Verso’s location also presents favourable export opportunities to both Asia and Europe. Verso will become the platform for BillerudKorsnäs’ future expansion in North America and is expected to provide continuous growth opportunities over the next ten years and beyond. The combined company will be one of the largest providers of virgin fibre paper and packaging with a cost and quality advantage.

“The combination of BillerudKorsnäs’ expertise in high-quality virgin fibre packaging materials and Verso’s attractive assets creates an excellent platform for long-term profitable growth. We will obtain cost-effective production of coated virgin fibre material in the Midwestern United States. We also plan to sequentially transform part of the business into paperboard production while continuing to serve the U.S. customers. Our investments will create new US-based jobs in a growing market and accelerate the transition from plastic-based packaging materials to renewable sources,” said Christoph Michalski, President and CEO of BillerudKorsnäs.

Converting assets into board production

The plan is to convert Verso’s largest facility, its Escanaba mill, into a world-class, sustainable, fully integrated paperboard production site. One machine is estimated to be converted by 2025, a second machine by 2029, to a total capacity of around 1 100 ktonnes. BillerudKorsnäs estimates that the investment for the conversion project will be up to SEK 9 billion, whereof around two thirds to be invested up to 2025 and the remainder up to 2029. The increased net capacity of around 400 ktonnes compared to today together with a more profitable product mix will create significant shareholder value over time.

In addition to continued paper production in Escanaba during the conversion, BillerudKorsnäs plans to continue operating the Quinnesec mill. It has an annual capacity of around 400 ktonnes of paper and 200 ktonnes of market pulp and is a cost and quality leader in graphical paper, specifically in coated woodfree and specialty papers. BillerudKorsnäs is committed to continuing to serve Verso’s existing customers.

The acquisition

The acquisition will be effected pursuant to a merger agreement under which Verso will merge with a wholly-owned subsidiary of BillerudKorsnäs. BillerudKorsnäs will pay holders of Verso’s issued and outstanding shares of common stock, subject to certain exceptions, an all-cash price of USD 27.00 per share, corresponding to an enterprise value of approximately USD 970 million (approximately SEK 8 770 million1 inclusive of Verso’s cash, net debt and other debt-like items as of 30 September, 2021.

The consideration corresponds to a premium of 26% compared to Verso’s volume-weighted average share price during the last 30 trading days and a premium of 35% compared to the closing price of Verso’s shares on 17 December 2021.

Combined net sales for BillerudKorsnäs and Verso for the twelve months ended 30 September 2021 amount to approximately SEK 36.7 billion and combined adjusted EBITDA for the same period is approximately SEK 5.0 billion (pro forma, 1 October 2020–30 September 20211).

A special meeting of Verso’s shareholders is expected to be convened following the mailing to Verso’s shareholders of a proxy statement for the transaction. Verso’s Board of Directors, acting upon the recommendation of a special committee, has unanimously approved and resolved to recommend the transaction to Verso’s shareholders.

The transaction is expected to close during the second quarter of 2022, subject to the approval of Verso’s shareholders, as well as receipt of applicable regulatory approvals and satisfaction of other customary closing conditions. Closing of the transaction is not subject to any financing condition.

Financing of the acquisition and the conversion

The acquisition and transformation will be financed through a combination of rights issue, additional debt and operating cash flow.

BillerudKorsnäs has entered into a new credit facility of SEK 6 000 million, provided by Danske Bank and SEB, intended to be utilized for this purpose. This credit facility is planned to be refinanced by issuance of debt instruments and an equity rights issue.

After the completion of the transaction and prior to the rights issue, BillerudKorsnäs’ interest-bearing net debt to adjusted EBITDA ratio (pro forma twelve months ending 30 September 2021) is estimated to be around 2.7x, temporarily higher than its target level of below 2.5x.

BillerudKorsnäs’ Board of Directors intends to propose to a general meeting of BillerudKorsnäs’ shareholders that the Board of Directors be authorized to resolve upon a rights issue of up to SEK 3 500 million. The rights issue is planned to be carried out in 2022 following completion of the transaction. BillerudKorsnäs’ four largest shareholders, AMF Pension and Funds, FRAPAG Beteiligungsholding, Swedbank Robur Funds and The Fourth Swedish National Pension Fund, which together hold around 37.7% of BillerudKorsnäs’ share capital, support the acquisition and have expressed their intention to vote for the rights issue and subscribe for their pro rata share.

Danske Bank and SEB, acting as financial advisors to BillerudKorsnäs in relation to the rights issue, have confirmed their commitment, subject to customary conditions and subject to BillerudKorsnäs obtaining binding subscription commitments for at least 25% of the rights issue, to enter into an underwriting agreement in connection with the rights issue. The rights issue will, by way of the shareholder commitments and the underwriting by Danske Bank and SEB, be fully covered.

Financial targets remain

BillerudKorsnäs will maintain its financial targets as communicated at the Capital Market Day in November 2021. The long-term targets are: Net sales growth of 3-4% per year, EBITDA margin >17%, Net debt / EBITDA <2.5x and Dividend >50% of net profit.

Acquisition-related costs of around SEK 135 million will be reported in the fourth quarter results of 2021 as an item affecting comparability.

Advisors

BofA Securities serves as exclusive financial advisor. Skadden, Arps, Slate, Meagher & Flom LLP serves as U.S. legal counsel and Cederquist serves as Swedish legal counsel to BillerudKorsnäs. Rothschild & Co serves as exclusive financial advisor and Kirkland & Ellis LLP serves as legal counsel to Verso.