Whether the former Verso Paper mill in Bucksport is sold to a scrap dealer now hinges on questions of federal antitrust law that will be hashed out during a hearing on Tuesday.
Both sides have filed hundreds of pages of testimony and evidence for and against the machinists union’s allegations that Verso Paper decided to close its Bucksport mill to eliminate a potential competitor and not because the mill was a failing business enterprise.
The machinists union, representing workers who lost their jobs when papermaking stopped in December, argues there’s cause for a fuller investigation. The buyer-in-waiting, American Iron and Metal, said the delay could cause it to walk away from the deal.
The union’s court challenge to the sale to AIM — which has an unlikely ally in Republican Gov. Paul LePage — raises big questions about the fate of the mill site, which AIM confirmed in court documents it has some interest in using as a permanent recycling facility for its deepwater port access.
Will the court allow further prying into Verso’s internal records? The machinists will have to convince a judge they’re likely to succeed with their antitrust claims to get more time and permission to expand evidence collection in the case.
They allege internal communications would show collusion by Verso and NewPage, which moved a step closer to merging this week, to shut down the Bucksport mill “ to make the pending NewPage acquisition more attractive economically to Verso” by eliminating that mill as a possible competitor and transferring customer accounts to its other mills.
The company and the Department of Justice, which conducted an antitrust review of Verso’s $1.4 billion purchase of NewPage, stated the merger did not trigger the Bucksport closure.
The only portion of the DOJ’s antitrust review dealing with the Bucksport mill was a footnote stating, “The United States does not allege the closing of the Bucksport mill is a result of the merger.”
The union argues the DOJ review was too narrow. Kim Tucker, the attorney for the union, argued that because the DOJ’s antitrust review was wrong to cast aside review of the Bucksport mill closure, writing the review “ simply accepted Verso’s self-serving assertion that it had intended to close the mill; and on this basis treated Bucksport as if it simply did not exist.” The union also argues that an antitrust review should not limit market studies to a paper machine’s current use.
That argument aims to justify looking at the combined companies’ influence on coated paper markets, while the DOJ review looked at coated groundwood paper and coated freesheet production as separate markets.
The case features economists challenged to a duel. The record so far includes battling testimony of economists from both sides who each, at one point, worked in the DOJ’s Antitrust Division.
The backdrop of this analysis is a picture of the global paper market for magazine and catalog paper, where China has excelled and the United States has fallen behind. American coated paper capacity has fallen by 3.7 million tons in the past decade, according to Verso surveys, with about 50 percent of that reduction at NewPage or Verso mills.
George A. Hay wrote for Verso, making the case Verso had legitimate economic reasons for closing its Bucksport mill and others in Wisconsin and Minnesota and that the reduction in capacity reduces its influence over the market, rather than enhancing it.
Frederick R. Warren-Boulton wrote for the union, making the case that it’s feasible a new buyer could pay more than AIM and operate the mill at profit and that the court requiring a sale to the highest bidder could force Verso and rivals to compete for the former Bucksport customers.
Did Verso turn down buyers interested in papermaking? On Friday, the machinists incorporated a statement from LePage’s office and the head of a Washington, D.C.-based consultancy with a house in Orland, who alleged Verso did not consider or respond to buyers interested in taking on the mill as a going concern.
Tucker, attorney for the union, wrote that Rosaire Pelletier, a state economic development official, told her at least one buyer planned to pay more than AIM’s agreed-to $58 million for the mill and power plant.
That’s generally contrary to Verso CEO David Paterson’s written testimony that he was not aware of any papermakers interested in the mill or who would buy it for more than $60 million, though he limited his statements to makers of coated groundwood paper.
The questions of who those buyers were will be secondary to the antitrust allegations before the court, but the union hopes the details will build a case that Verso made its sale decision not on price but on what would happen to the mill.
Jeff McGlin, vice president of AIM’s U.S. subsidiary, testified that the sale agreement does not require AIM to dismantle the mill and that the company “ would sell to a buyer intending to operate the mill to make paper, if the offer represented a better economic opportunity” than salvaging it.
Already invested, the new buyer wants a say, too. McGlin also testified that AIM has already put a $10 million down payment on the mill and set its price with an expectation it would get some profits from having a separate firm operate the power plant through the first part of 2015.
For that reason, it says any delays to pursue the union’s line of questioning would hurt it financially and cause it to hold aside $48 million pending a resolution.
The testimony indicated the company expects that it would be ready to sell salvaged metal from the mill about six months after closing the sale.
As for the long-term use, McGlin wrote, “ AIM has not finalized a strategy for the use of the site,” but that it represents a “potentially very good strategic fit” as a recycling facility because of its access to a deepwater port.