Verso Paper IPO: Not to Be Glossed Over

by: Maribeth Miller

Verso Paper Corp. (NYSE:VRS) supplies coated papers to catalog and magazine publishers.

All quotations are from the company’s most recent S-1 filing with links provided.

Business Overview (from prospectus)

We are a leading North American supplier of coated papers to catalog and magazine publishers. The market for coated paper, which is comprised of coated groundwood paper and coated freesheet paper, is one of the most attractive segments of the paper industry due to its prospects for volume growth, continued improvement in pricing and the high value-added nature of its products. Coated paper is used primarily in media and marketing applications including catalogs, magazines and commercial printing applications, which include high-end advertising brochures, annual reports and direct mail advertising.

We are North America’s second largest producer of coated groundwood paper, which is used primarily for catalogs and magazines. We are also North America’s lowest cost producer of coated freesheet paper, which is used primarily for annual reports, brochures and magazine covers. In addition to coated paper, we have a strategic presence in supercalendered paper, which is primarily used for retail inserts. We also produce and sell market pulp, which is used in the manufacture of printing and writing paper grades and tissue products.

Offering: 18.8 million shares at $16-$18 per share. Net proceeds of approx. $295.8 million to be used to repay loans and general corporate purposes.

IPO Underwriters: Credit Suisse (NYSE:CS), Citi (NYSE:C)

Financial Highlights:

Net sales for the 3 months ended March 31, 2008 were $453.9 million vs. $359.8 million for the 3 months ended March 31, 2007… cost of products sold for the 3 months ended March 31, 2008 was $375.4 million vs. $316.3 million for the 3 months ended March 31, 2007…selling and G&A expenses for the 3 months ended March 31, 2008 were $14.2 million vs. $11.2 for the 3 months ended March 31, 2007…net loss for 3 months ended March 31, 2008 was $3.1 million vs. $35.4 million for the 3 months ended March 31, 2007.

Competitors:

Our business is highly competitive. A significant number of North American competitors produce coated and supercalendered papers, and several overseas manufacturers, principally from Europe, export to North America. We compete based on a number of factors, including: price; product availability; quality of our products; breadth of our product offerings; our ability to maintain plant efficiencies and high operating rates and thus lower our average manufacturing costs per ton; customer service and our ability to distribute our products on time; and the availability and or cost of wood fiber, market pulp, chemicals, energy and other raw materials and labor. Foreign competition in North America is also affected by the exchange rate of the U.S. dollar relative to other currencies, especially the euro, market prices in North America and other markets, worldwide supply and demand, and the cost of ocean-going freight.

While our product offering is broad in terms of grades produced (from supercalendered and ultra-lightweight coated groundwood offerings to heavier-weight coated freesheet products), we are focused on producing coated groundwood and coated freesheet in roll form. This strategy is driven by our alignment with catalog and magazine end-users which tend to purchase paper in roll form for use in long runs of web printing in order to minimize costs. Our principal competitors include NewPage Corporation, Bowater Incorporated (ABH), UPM-Kymmene Corporation and Sappi Limited, all of which have North American assets. UPM and Sappi (SPP) are headquartered overseas and also have overseas manufacturing facilities.

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