Thesis: Verso (VRS) is undervalued on a book value basis and hidden assets provide even more value. This article explores the hidden value of Luke mill and ongoing costs Verso has to bear because of lack of government infrastructure.
The Luke mill closure has been latched onto by many news sites as just another example of globalization destroying American jobs. Luke mill Maryland had been in operation for 141 years and is a testament to the incredible resilience and competitive nature of American businesses.
Luke mill was the most costly paper mill in Verso's portfolio. It was responsible for its coated free-sheet product that is under a lot of competitive pressure from cheap international product, mainly Asia. Verso has a lot of production capacity for this particular product and it made no sense to produce coated free-sheet out of a costly mill.
Some reasons for Luke mills high cost include: old age, new environmental regulations imposed by the state of Maryland, and organized labor. Verso was in tough negotiations with the labor unions and when agreements were finally made, new environmental laws forced Verso to close Luke mill. This along with the glut of international paper made it difficult to compete. The impact has been felt by the entire tri-city area and affected the towns of Luke, Piedmont and Westernport.
Labor Unions and the EPA
Luke mill has struggled with labor unions over this past year, and additional laws and environmental regulations passed by the state just added to Verso's pressures. Luke mill has been in negotiations with the steelworkers union in order to resolve pay and benefits contracts. This has increased the amount that it costs to run Luke mill.
Luke mill has also "as recently as 2014, been the state's largest source of the toxic gas and lung
