President and CEO, E. Thomas Curley, had barely learned the most efficient traffic routes to the office, when he was handed a check for $1.265 million, told not to come back, and, by the way, “don’t forget that you ‘resigned’”. Not a bad four month gig – I doubt that Lady Gaga does that well.
I believe that Mark Suwyn, Chairman and company Director, had been with NewPage from the “Cerberus” beginning. NewPage lost money every year under Suwyn, and was the worst managed company in the business. For that performance, Suwyn will walk away with a cool $2 million.
As an aside, it was reported that Suwyn engaged his son’s consulting firm in 2009, at a cost of $747,000, to provide training for “improving communications skills, consensus building and problem solving abilities.” (NewPage 2009 SEC Form 10-K, at 117). That is so disappointing, and in such bad taste. The program apparently didn’t work either.
The very good news is that there is no upper level management of NewPage. There is no Chairman. There is no President. There is no CEO. If this were allowed to continue for a few years, some real progress could be made.
Robert Nardelli, who has a big Cerberus title, is responsible for the NewPage performance, and is now the non-executive chairman of NewPage. That non-executive title is very important. It means he shouldn’t be in a position to make any decisions.
This entire mess was created, of course, by Cerberus mismanagement. They hired the wrong people, gave them impossible marching instructions, and have continue to play an expensive game of musical chairs at the highest levels of the company. The initial strategy of “pump and dump” didn’t work, and now Cerberus is relegated to actually operating a company. This is not their strength. But then, what is their strength?
We should not be worried though. Mr. Nardelli promises that, “This is a well positioned business”. The following report was offered to prove that (except for large severance packages paid on a regular basis) NewPage is the low cost operator. See NewPage June 2010. Just for the record, most coated producers believe that they are the low cost producer. Only one of them is correct.
Unfortunately for NewPage, however, debt is a fact of life. My understanding is that most of the company’s $3.35 billion of debt has an interest rate in double figures. In its 10K annual report, the company indicates that it expects to pay $323 million in interest in 2010. This equates to roughly $86/ton, if the company were to run full all year. (Estimate of 4.4 million tons of capacity at an 85% operating rate.) This estimate is likely on the conservative side, however. When the year is finished I would be surprised if interest paid in 2010 equates to less than $100/ton.
Interest repayments and debt repayment (2012-2014) will be very difficult challenges for the company. Our lead story in next week’s Reel Time will offer conjecture as to how all this might work out.
No joking, what is the management of Cerberus thinking? Are they giving up? Are they finally going to install a management team that understands the business? What changed in the last four months that required a new management team? How long will the next group last?
What’s next?
How about a merger…. How about a merger with someone like… lets say… VERSO? To my knowledge Vero has purchased some of NewPage’s debt.
A merger would make total sense…. Why else would you fire your to Execs? You really don’t need two CEO, Two Board chairs and two HR Heads….. Think about it.
Thanks for taking the time to comment Mike,
I don’t think that a merger – prior to bankruptcy – can happen. Any new buyer would be unwilling to take on $3.3 billion in debt. But Verso and NewPage combining after a NewPage bankruptcy (or maybe a massive reorganization in which most of the debt is cancelled) would make a lot of sense.
Thanks again,
verle
Is Sherman Antitrust reall totally dead?
Apollo (Verso’s owner) owns some NewPage debt.
Not so sure about a merger with Verso as the HSR and DoJ approvals will be very tough. You really need a Chapter 7 to get it done, a Chapter 11 (reorganization) may not be enough. They will have to prove that the assets would leave the industry if they did not merge or that they would not gain any market power by the merger (on second thought maybe they do get approval as the merger of Abitibi and Bowater certainly did not help newsprint!)
Hi Paperboy and George,
Thanks for your comments. You both are right of course – there are anti-trust issues. I am not at all confident that a Verso-NewPage merger would go through. On the other hand, I keep coming back to the fact that if the Justice Department does not allow such a merger, then all U.S. coated paper companies will continue to struggle financially, and be less able to compete in the world market.
I believe that the chances are better than 50-50 that this merger will eventually be tried. Are the chances then 50-50 that it will go through?
Just as an aside I was contacted by the Justice Department when they were considering the Abitibi and Bowater combination. It was an interesting conversation. They make decisions based on political pressure.
Thanks again for taking the time to comment.
verle
It is always very interesting to read discussions about the senior management and whether or not they understand the business, etc. There is some truth to that in this case. However, the bulk of the problem is that most of the mills within NewPage are poorly managed, and have been since late in the Consolidated Papers days. Ask Stora Enso how much money they made on their investment during the time they owned the Company. NewPage now is for the most part structured on the the premise that the paper market money trough is always full and if they roll out the tons then they will get their share. Three years of re-staffing and happy management (including extensive investments in Lean Six Sigma) did virtually nothing to address the core inefficiencies (mill inefficiencies, not paper machine efficiencies – lets not confuse the two) of the mills. It’s a different market, it’s a different world, and when will they stop managing like it was the 1970′s?
Izaak,
Thanks very much for the comment.
I am not raising the following question to challenge your statement – I would just like to understand it better. How do you differentiate mill inefficiencies from machine efficiencies?
verle
Individual paper machine efficiencies are generally measured by the traditional yardstick (some variation on tons produced/tons possible in available run time, etc.). Even that number can be questionable without knowing what the definition of “available run time” that the mill is using. A total mills efficiency has traditionally not had a single number other than pure profitability. There are a lot of things that go into profitability like corporate overhead, debt load, maintenance cost and efficiency, allowances to customers for poor quality that stays sold, etc. that can affect that. Great paper machines – poor profitability – how does that happen? So even if you back out the debt load, NewPage is not a big moneymaker (and hasn’t been since the Stora days and that debt load). So if you can’t get more tons (and dollars) out of the paper machine to service that debt, you have to find it somewhere else in the mill. You have to be measurably more efficient…
FYI Verle,. Cerebus being the three headed dog in Greek mythology did not go over our heads with the photo you posted for this article.
What about APP buying New Page – not for the mills but more for their customer list and connection with Unisource?
Hi Mike,
Customer lists are not worth $3.3 billion – the NewPage debt. Besides APP has very little it can sell over here anyway as long as trade sanctions are in place.
I sppose that APP could be a suitor, after bankruptcy (should that occur).
verle