GREENWICH, Conn. and
NEW YORK, Jan. 28, 2020
/PRNewswire/ -- Lapetus Capital II LLC (together with its
affiliates, "Atlas"), along with other participants in its
solicitation, including BW Coated LLC (together with its
affiliates, "Blue Wolf"), is the beneficial owner of approximately
9.43% of the outstanding common stock in Verso Corporation (NYSE:
VRS, the "Company" or "Verso"). Atlas and Blue Wolf today outlined
several critical reasons why stockholders need to act decisively to
protect their investment and elect its three highly qualified
director candidates – Tim Lowe,
Sean Erwin and Jeffrey Kirt – to the board of directors of
Verso (the "Board").
The 2019 annual meeting of stockholders of Verso (the "Annual
Meeting") will be held this Friday, January
31, 2020. This is the 2019 annual meeting, which was
supposed to be held in September of 2019, but was unilaterally
delayed by the incumbent Board multiple times in violation of
Delaware law. This is a pivotal
Annual Meeting for Verso stockholders as they will vote on whether
to elect Atlas' director candidates to the Board. We believe the
results will have a profound impact on stockholders' ability to
realize the value they deserve from their investment in Verso.
We believe that the critical issues for stockholders to consider
fall into three main categories, each of which clearly underscores
the need for change at the Company and the shortcomings of the
incumbent directors:
Governance
In approaching this election, the Board has proposed a series of
long overdue governance reforms and board composition enhancements
at Verso. However, these proposals have been advanced in what
is at best a belated effort to convey a false sense of commitment
to the principles of good governance in a disingenuous attempt to
placate stockholders. Leading proxy advisory firm,
Institutional Shareholder Services ("ISS") also emphasized the
dubious timing of the Board's recent corporate governance
changes. In fact, in its recommendation that stockholders
vote on Atlas' BLUE proxy card, ISS stated:
- "The timing of the board refreshment and [the two Co-Chairs']
subsequent decision to step down appear directly linked to this
proxy contest. The company's executive succession planning
looks subpar, as shown by its CEO changes in 2019. This fact
pattern calls into question whether the company would have improved
corporate governance, absent pressure from the
dissident."1
Another leading proxy advisory firm, Glass, Lewis & Co., LLC
("Glass Lewis"), has shared the exact same concerns about the
incumbent Board's corporate governance practices. In fact, in
its report, also recommending that stockholders vote on Atlas'
BLUE proxy card, Glass Lewis said:
- "…we believe a litany of questionable corporate governance
practices at the Company over the last two years, including failing
to hold the 2019 annual meeting in the required timeframe,
excessive director compensation, a lack of demonstrated effort to
undertake shareholder-friendly changes without the threat of a
proxy fight and recent entrenchment tactics, justify further board
change."2
The Board waited almost a year before proposing these changes,
and conveniently did so after the proxy contest had begun and just
before the election of directors at the Annual Meeting. The
timing is not coincidental and stockholders should look at the
Board's true track record on governance, and motivations for
belated improvements, before believing they have truly turned over
a new leaf.
In addition, the Delaware
Chancery Court found that Atlas presented facts sufficient to
establish a credible basis for the Court to infer that there may
have been entrenchment motives and possible wrongdoing by the Board
of Directors of Verso.
Stockholders should not forget that all of the incumbent
directors up for election have actually proposed to stockholders at
the Annual Meeting at least two defensive measures that are hidden
entrenchment devices and extremely unfriendly to
stockholders. These two entrenchment devices are: (1)
the ability of the incumbent Board to ignore the stockholder vote
on whether to keep the current poison pill in place (also known as
a "strawman vote"); and (2) the lack of a plurality carveout for
contested director elections in the proposed majority vote in
director election proposal, which can mean no directors get elected
in future election contests and the incumbent directors remain in
place (while the Board also made no recommendation on the proposal
they put forth).
Incumbent directors who own virtually no stock in Verso,
including Nancy Taylor, Jay Schuster and Steven
Scheiwe, put forth these proposals that are antithetical to
the principal of stockholder democracy. This further calls into
question whether, without sufficient board-level change and
ownership perspectives in the boardroom, the incumbent directors
are capable of fostering an environment where best-in-class
corporate governance practices can thrive.
Business Performance
We also believe that Verso has been operating well below its
potential and that the Board's multi-year and all-consuming
strategic review process, culminating in the proposed sale of
Androscoggin and Stevens Point mills (the "Specialty Mills"), has
resulted in the absence of a defensible and thoughtful long-term
business strategy for the remaining assets of the Company. This is
likely why Verso's stock trades at the lowest EV/EBITDA multiple
among its peers3 and the Company has had three CEOs in
as many years.
Furthermore, the Board touting improved stock and financial
performance rings false to us as we believe the performance was
driven by a higher net selling price ("NSP") as a result of tighter
market conditions as opposed to the Board's execution of a
successful operating strategy. ERA Forest Products Research, a
leading independent financial research company focused exclusively
on Pulp, Paper and Forest Products, noted that "Verso had nothing
to do with the changes in the supply and demand dynamic, but
clearly benefited from it. To take credit for it is
disingenuous."4 Verso operating results demonstrate
that it failed to implement the appropriate cost controls and right
size its cost structure to match the ongoing sales volume decline.
For instance, despite removing its highest cost mill (Luke),
Verso's cash cost per ton increased by $47 from 2017 to 3Q 2019 LTM.5 We
believe this failure to exercise appropriate cost control led to
the Company underperforming by ~$128
million of EBITDA in the 3Q 2019 LTM period.
Verso Actual ($MM
except per ton figures, rounded)
|
2017
|
3Q'19
LTM
|
Delta
|
Net
Revenue
|
$
2,461
|
$
2,552
|
$
91
|
Tons Sold
|
2,959
|
2,732
|
(227)
|
NSP/Ton
|
$
832
|
$
934
|
$
102
|
|
|
|
|
Cash
COGS1
|
$
2,221
|
$
2,179
|
$
(42)
|
Cash
COGS/Ton
|
$
751
|
$
798
|
$
47
|
|
|
|
|
Adj.
EBITDA
|
$
134
|
$
273
|
$
139
|
Adj.
EBITDA/Ton
|
$
45
|
$
100
|
$
55
|
1. Cash cost
calculated by subtracting Adjusted EBITDA and SG&A from Net
Revenue.
|
|
Verso's Uncaptured
Upside
|
Cost
Increase/Ton
|
$
47
|
3Q'19 LTM Tons
Sold
|
2,732
|
EBITDA
Impact
|
$
128
|
Further, as noted by RISI, the Coated Paper (Coated Freesheet
and Coated Mechanical) markets continue to decline with the rate
accelerating above 10% for the ten-month period through
October 2019.6 We believe
that the largest players in the Coated Paper markets, including
Verso, will face the brunt of these adverse forces and will either
need to remove supply to balance such markets or face significant
price erosion. Such an environment requires a Board with
significant industry experience specific to such markets and a
comprehensive long-term strategy.
Unfortunately, the Board's lack of industry experience already
has led to what we believe was an egregiously poor capital
allocation decision in the conversion of the A3 paper machine at
the Androscoggin mill. The conversion was poorly conceived and
lacked a long-term strategy which led to Verso selling linerboard
into an export linerboard market that went from an NSP of
$788 per ton when the investment by
Verso was announced in February 2018
to an NSP of $470 per ton in
October 2019.7 This
decision and execution plan (or lack thereof) demonstrates a
fundamental lack of knowledge of domestic and global packaging
markets. Despite this experience, the incumbent Board is now
threatening to pursue a similar conversion project in Duluth, which
is likely to cost tens of millions of dollars.
We are convinced that Verso needs oversight from new directors
with extensive experience in its remaining coated paper businesses
and companies undergoing operational turnaround. The election
of the three Atlas director candidates will ensure that the Board
has the relevant industry and operating experience to develop and
execute a viable long-term strategy to operate the business at its
full potential.
Industry experts agree with our assessment of Verso, as Glass
Lewis voiced their "outstanding concerns that the incumbent board
appears to be conducting a perpetual strategic review in lieu of an
actual strategy."8
Additionally, ERA Forest Products Research stated that based on
their analysis of Verso, they "are of the opinion that Verso's
existing management has worn out its welcome. As such, investors
should return the BLUE proxy card in support of the slate of
directors proposed by Atlas and Blue Wolf."9
Atlas Nominees
Based on our twenty years of successfully investing in the paper
industry, we are confident Verso is capable of delivering far
better performance if certain sensible operational improvements are
made – the kind of improvements that the incumbent directors lacked
either the ability or the inclination to deliver during the
multi-year strategic review process. We believe experienced,
independent and thoughtful voices with ownership perspectives on
the Board like those of Tim
Lowe, Sean Erwin
and Jeffrey Kirt will reject
the status quo at Verso and deliver value to stockholders. As
previously stated, all three of these director candidates are
independent and would be considered so under New York Stock
Exchange rules and policies, as well as under the guidelines of
both leading proxy advisory firms, ISS and Glass Lewis.
We continue to struggle with Verso's defamatory attacks on
Tim Lowe. We have nominated Mr. Lowe
because of his vast operating experience in the paper and pulp
industry spanning almost four decades, including the graphic paper
and bleached-kraft pulp markets that are most relevant for Verso.
The Company has spread a false and distracting narrative of his
alleged conflict, disingenuously suggesting that Verso and Twin
Rivers, a company at which Mr. Lowe serves as a non-executive
director, have meaningful product overlap. Verso, if an
informed market participant, should know well that any overlap in
products sold by Verso and Twin Rivers is de minimis at best and
would no longer exist once the sale of the Specialty Mills is
completed. In addition, we note that Atlas's investments in
Verso and Twin Rivers are held in different Atlas funds, each of
which has separate fiduciary obligations. Further, there are
safeguards in the limited partnership agreements of the funds
managed by Atlas to protect against decisions or actions that may
benefit one fund at the detriment of another Atlas fund and, if
elected, we would expect Mr. Lowe to adhere to these safeguards and
act as a director of Verso in accordance with his fiduciary
obligations to Verso. At the end of the day, based on their
experience and interactions with Mr. Lowe, Atlas and Blue Wolf have
no doubt that Mr. Lowe would uphold his fiduciary duties on the
Board of Verso and take actions consistent with such fiduciary
duties - for the benefit of ALL Verso
stockholders.
Stockholders should strongly question the true motivation behind
the incumbent Board's allegations about conflicts of interest
relating to Mr. Lowe's director role with Twin Rivers. This
is particularly the case given that the incumbent Board has already
determined by selling the Specialty Mills that the products in
question are no longer a critical part of Verso's current business
and strategic plan.
However, in order to achieve improved operating results on the
scale that we envision for the benefit of ALL stockholders, Verso's
board needs directors with the requisite operational and industry
experience. Tim Lowe is one of those
people.
Tim Lowe, along with Sean Erwin and Jeffrey
Kirt, would be only three of seven directors, representing a
minority of the Board. If elected, they will be expressly bound by
Verso's corporate governance guidelines and code of conduct
applicable to all directors (the "Verso Policies"). We would
also expect them to collaborate with the re-constituted Board to
make fully informed decisions consistent with the Verso Policies
regarding director independence and conflicts of interest
assessments that arise from time-to-time, as is routinely the case
in all boardrooms across Corporate America. Finally, the Company
already has alluded to the possibility of diluting the input of any
of our candidates that get elected at the Annual Meeting by
expanding the Board to eight directors. For this reason,
among many other governance shortcomings, Tim Lowe, Sean
Erwin and Jeffrey
Kirt must be elected.
Three Independent Research Firms Urge
Stockholders to Vote on the BLUE proxy!
Three independent research firms – Institutional Shareholder
Services (ISS), Glass Lewis, and ERA Forest Products Research –
have ALL concluded that change is warranted at Verso and that
stockholders should vote on the Atlas/Blue Wolf BLUE proxy
card to elect one to three Atlas nominees and bring needed fresh
thinking and industry expertise to the Verso Board.
FOLLOW ISS', GLASS LEWIS' AND ERA'S
RECOMMENDATIONS AND VOTE ON THE BLUE PROXY CARD TODAY!
Now is the time to vote your shares. Atlas and Blue Wolf
encourage you to vote on the BLUE proxy card today
FOR the election of all THREE (3) of its highly qualified
independent nominees - Tim Lowe,
Sean Erwin and Jeffrey Kirt.
Atlas Holdings is an industrial holding company with
a portfolio of 20 companies with aggregate annual revenues of
approximately $5 billion, operating
approximately 150 facilities and employing more than 18,000 people
globally. Although we are engaged in a variety of industrial
sectors, Atlas Holdings has been successfully investing in the
pulp, paper and packaging industries since our formation in 1999,
including specifically in the subsectors in which Verso
participates — specialty paper, graphic paper, packaging paper and
pulp. We generate profits for our investors by investing in
underperforming businesses and unlocking the full potential of
those companies over the long term. Atlas Holdings has a
total of approximately $3.0 billion
of committed capital under management, including $1.7 billion in its third investment
fund.
Blue Wolf Capital Partners is a middle market
private equity firm whose partners have decades of experience
investing in and growing companies. Blue Wolf transforms
companies strategically, operationally and collaboratively.
Blue Wolf manages challenging situations and complex relationships
between businesses, customers, employees, unions and regulators to
build value for stakeholders. For over a decade Blue Wolf has
been an active investor in pulp, paper and forest products
companies with a highly successful track record. Blue Wolf
has over $1.6 billion in committed
capital.
IMPORTANT INFORMATION
On December 31, 2019, Lapetus
Capital II LLC ("Lapetus"), together with the other participants in
Lapetus' proxy solicitation (the "Participants"), filed a
definitive proxy statement and accompanying BLUE proxy card with
the Securities and Exchange Commission (the "SEC") to be used to
solicit proxies in connection with the 2019 annual meeting of
stockholders of Verso Corporation (the "Company"). LAPETUS STRONGLY
ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE DEFINITIVE
PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF
PROXIES FROM THE STOCKHOLDERS OF THE COMPANY BECAUSE THEY CONTAIN
IMPORTANT INFORMATION, INCLUDING INFORMATION ABOUT THE IDENTITY OF
THE PARTICIPANTS IN THE SOLICITATION AND A DESCRIPTION OF THEIR
DIRECT OR INDIRECT INTERESTS THEREIN. The Definitive Proxy
Statement and a form of proxy is available to stockholders of the
Company at no charge on the SEC's website at http://www.sec.gov and
is also available, without charge, on request by contacting
Lapetus' proxy solicitor Harkins
Kovler, LLC by telephone at the following numbers: 1 (212)
468-5380 (banks and brokers call collect) or toll-free at 1 (877)
339-3288.
Media Contacts:
Prosek Partners
Andrew Merrill / Brian Schaffer / Josh
Clarkson
646.818.9216 / 646.818.9229 / 646.818.9259
amerrill@prosek.com / bschaffer@prosek.com /
jclarkson@prosek.com
1 Permission to quote ISS was neither sought nor
obtained.
2 Permission to quote Glass Lewis was neither sought nor
obtained.
3 Source: Capital IQ. Peer group: Domtar
Corporation, International Paper, Neenah Paper, Schweitzer-Mauduit
International, Ahlstrom-Munksjo, Packaging Corporation of America,
Sappi Limited, UPM-Kumme Oyj, Stora Enso Oyj.
4 Permission to quote ERA was neither sought nor
obtained.
5 Verso public filings.
6 RISI PaperTrader for Coated Freesheet consumption with
industry statistics through October
2019.
7 RISI unbleached kraft linerboard 175 gsm for export to
Southern Europe.
8 Permission to quote Glass Lewis was neither
sought nor obtained.
9 Permission to quote ERA was neither sought nor
obtained. Emphasis added.
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content:http://www.prnewswire.com/news-releases/atlas-and-blue-wolf-outline-urgent-need-for-their-three-highly-qualified-independent-directors-to-help-fix-verso-300994650.html
SOURCE Atlas Holdings LLC; Blue Wolf Capital Advisors IV,
LLC