KPS Capital to Buy Wausau Specialty Paper Business for $130 Million

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Wausau Paper announced yesterday that it signed a non-binding Letter of Intent to sell its specialty paper business to a company that will be formed and controlled by investment funds controlled by KPS Capital Partners, LP.  KPS is a New York based private equity firm with vast experience in the completion of complicated corporate carve-outs and in the paper industry.  Hank Newell, president and CEO of Wausau Paper said, “We are pleased to have signed this letter of intent…which will provide proven operations and management leadership for the Paper business along with new opportunities to expand its product offerings and market reach. 

KPS also signed a non-binding Letter of Intent to acquire a different company.  It plans to combine it with the specialty paper business within NewCo.  This deal gives Wausau the option to have an initial ownership position of up to 25 percent in NewCo with an option of earning up to 5 percent additional if NewCo reaches certain performance goals. 

The assets of Wausau’s Rhinelander and Mosinee mills will be acquired by NewCo.  Wausau’s Brainerd mill assets are not included in the deal.  This transaction requires new collective bargaining agreements between the United Steelworkers union and NewCo.   Wausau is to retain post-retirement liabilities and legacy defined benefit pension relative to the business being sold.

Subject to KPS’ confirmatory due diligence and adjustments for the treatment of certain transaction related liabilities and customary post-closing adjustments, the initial cash purchase price will be approximately $130 million. 

This final transaction is subject to many issues within the negotiation.  The confirmatory due diligence will need to be acceptable.  Regulatory clearances need to be given.  The collective bargaining agreements need to be ratified.  Final negotiations and Board approval are needed for the definitive agreements along with other customary contingencies to closing, including third party financing.  The company expects to finalize the deal in the second quarter of 2013.  However, there’s no certainty about specific elements or completion of the deal.  The deal is also contingent upon NewCo acquiring the other company. 

Wausau also announced yesterday that it will close its Brainerd, Minnesota paper mill.  The mill will be closed early in the second quarter and it will eliminate 130 jobs.  Newell said the closing was due to several factors including the company’s decision to exit the print paper business and economic weakness along with more completion in Asia.  Newell said, “Those conditions created operational losses from the mill that were unsustainable.”

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