Shares of Verso Corp.’s stock dropped as low as 7 cents Friday and analysts said they suspect it’s only a matter of time before the company files for bankruptcy.
It was more bad news for the town of Jay, which learned this summer that Verso would eliminate 300 jobs at the Androscoggin Mill come winter.
On Monday, Verso’s stock dropped to 15 cents a share, prompting the New York Stock Exchange to suspend sales.
“When your stock falls below $1, it’s telling,” Bert Smoluk, a finance professor at the University of Southern Maine’s School of Business, said. “No matter how you boil it down, the company is in trouble.”
Chip Dillon, a partner at Vertical Research Partners in New York and a longtime paper and packaging industry analyst, said it partly reflects demand: People are just using less paper.
“Verso and NewPage were two drunks trying to hold themselves up (when Verso bought NewPage in January),” Dillon said. “They thought they had the right kind of leverage, but obviously the market has collapsed faster than they thought it would. There’s no equity value left, is what the market is saying; and of course that’s probably going to be proven when they miss a debt payment and they have to go through the whole song and dance again of bankruptcy, and then continue to shrink. It’s really sad.”
On Monday, Verso Corp. executives said in a news release that the NYSE was taking steps to delist its stock because it didn’t meet listing criteria anymore. Verso’s stock share had dropped “abnormally low.”
Verso wrote in a filing with the Securities and Exchange Commission on Sept. 4 that delisting could mean “increased interest and other financial expenses related to future borrowings, and could further restrict Verso’s access to additional capital or trade credit.”
Day to day at the Jay mill, the delisting hasn’t had an impact on employees, spokesman Bill Cohen said.
Hourly workers had until this week to respond to Verso’s early retirement offer prompted by the summer news.
“Next week we will begin to review the responses and begin to figure out who, unfortunately, will be laid off and who will be a part of the 530 remaining,” he said. “The process will continue through the end of the year and hopefully be done in (the first quarter of) 2016.”
Smoluk said he believes the delisting and the new low on the stock price are a signal that “this company will probably go bankrupt.
“People are only going to lend it money if they think they’ll be paid back,” he said. “A bank is not going to lend it money, stockholders are not going to do it. The fundamentals of the company must have fallen apart.”
Pankaj Agrrawal, an associate professor of finance at the University of Maine, said Verso now being traded on the over-the-counter market is going to further introduce volatility.
“You become a penny stock, and then the type of people that invest in you, they’re sort of speculators as opposed to investors who are true long-term buy and hold (investors),” he said.
It means lots of sales that try to capitalize on gains of a penny or two and get out.
“The (company) assets that are nice and valuable and shining, they may have to sell them to generate some cash,” Agrrawal said. “Very painful. Here’s one way to avoid it: Enter Mr. Bankruptcy. I think the company should call an annual shareholders meeting and ask (whether to pursue that). You have to make a choice: Bankruptcy is going to unleash certain things, but it brings with it certain protections.”
Analyst Dillon said year-to-date through August, U.S. mill shipments of coated freesheet paper are down 7 percent and coated groundwood paper down 13.4 percent, part of that shrinking demand.
Jay makes both, along with specialty papers.
“If I made boom boxes, I would be nervous. If I made vacuum tube-based television sets, I would be nervous,” Dillon said. “This whole delisting thing is a symptom of the disease which is (technology).
“I think the bigger issue for a Jay mill worker is simply how fast does the technology change create less and less demand for the products the Jay mill makes, and when does that mill and that community and others take action to greet the new day,” he said.
The Maine Pulp and Paper Association in a statement released Friday said paper remains one of the state’s most important industries, “but the recipe for survival today looks much different than it did even a decade ago.”
The association also announced it’s hosting a summit in Bangor on Nov. 17 called “Refreshing through Innovation,” inviting mill leaders and other stakeholders here to talk about the industry transforming itself in the future.
kskelton@sunjournal.com
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