The proposed merger of Verso Paper and NewPage Holdings, announced on Jan. 6, sent shockwaves through the local and global paper industries.

Verso’s stock shot up more than 570 percent, analysts started chattering about implications for the global paper market, and millworkers in Maine expressed hope the deal would improve circumstances for the more than 2,000 Mainers who would be employed by the new paper industry titan.

If completed, the $1.4 billion deal offers cause for guarded optimism because consolidation will in the long run strengthen the individual mills, a majority of paper industry experts interviewed by the Bangor Daily News said. But the change could also bring short-term upheaval, including potential job losses, for a heritage Maine industry faced with a rapidly changing market and competition from abroad.

John Patrick, a state senator from Rumford who has worked at the local paper mill for 33 years, is no stranger to the uncertainty that comes with having a new owner. During his time at the mill, it has had five owners: Ethyl, Boise Cascade, Mead, MeadWestvaco, NewPage.

It can be unsettling every time a new owner enters the picture, but it’s also a chance for a new start, which is why Patrick is “cautiously optimistic” that the merger would benefit the 121-year-old Rumford mill and its employees.

“I haven’t always been happy with the decisions NewPage has made,” he said, pointing out that it’s owned by investment firm Cerberus Capital Management. “They’re an investment company and investment companies do things for different reasons. Paper companies have traditionally looked at the long-term.”

The deal is interesting in that Verso, a much smaller company than NewPage, is the one doing the acquiring.

Memphis, Tenn.-based Verso has eight paper machines at three paper mills: two in Maine at Bucksport and Jay, and a third mill in Quinnesec, Mich. Annual production from those three mills is 1.5 million tons of coated paper and 930,000 tons of pulp. Verso reported $1.5 billion in annual sales in 2012. It employs roughly 1,450 people in Maine.

NewPage, headquartered in Miamisburg, Ohio, has 18 paper machines at eight mills, including one in Rumford that employs roughly 850 people. The seven other NewPage mills are in Kentucky, Maryland, Michigan, Minnesota and Wisconsin. It employs roughly 5,900 people and has a total annual production capacity of 3.5 million tons of coated paper. It had $3.1 billion in sales in 2012.

Upon the merger’s completion, the new company would remain known as Verso and David Paterson, Verso’s CEO, would remain in charge.

The new Verso would employ 2,300 Mainers, nearly a third of all paper industry workers in the state, and control 50 percent of the coated paper market in North American. Each company also produces smaller amounts of specialty papers, such as for food packaging.

The market for coated paper, which is used in magazines, catalogs and other types of publications that require glossy paper, is in “structural decline” due to the impact of electronic media on magazine and catalog readership, according to Chris Cook, deputy editor of Pulp and Paper Week, a publication of RISI, a research firm that tracks the global forest products industry.

In 2013, paper mills in North America produced 8.4 million tons of coated paper, which is a 40 percent reduction from 2007, according to Cook.

Imports from Europe, when exchange rates are right, also put downward pressure on the market.

Neither company on its own is in great financial health. Verso currently operates with $1.27 billion in debt; it lost roughly $10 million during the third quarter of 2013; and Standard & Poor’s after the merger announcement reduced the company’s corporate credit rating from a B minus to CC, which it defines as “highly vulnerable.”

NewPage filed for bankruptcy in 2012, emerging a few months later, but continues to struggle. In November, it said it was “indefinitely” stopping production in February on one of its paper machines in Rumford, which will affect roughly 120 employees.

Before the merger announcement, most people thought Verso was headed toward a Chapter 11 filing, as well.

“It’s about time [the merger] happened,” Chip Dillon, a paper industry analyst and partner at Vertical Research Partners in New York, told the BDN.

Struggling companies have a hard time investing in the future because they’re focused on surviving to the next day, but a consolidated company will be much stronger and better positioned for long-term success, he said.

“I think it’s good for everybody, but would caution that this could create some job losses that wouldn’t have happened otherwise,” Dillon said. “But whatever is left is more secure than it would have been.”

Verso claims it will save a total of $175 million the first 18 months by buying raw materials — wood, pulp, chemicals — in bulk and from other efficiencies gained at the administrative level. For example, Verso’s Jay mill and NewPage’s Rumford mill are only 24 miles apart and currently compete for wood in the same area. As one company, they’ll save on wood purchases.

“Any time relatively large companies in the same general market segment merge there’s synergies they can take advantage of,” Michael Bilodeau, associate director of the University of Maine Forest Bioproducts Research Institute, told the BDN. “The whole supply chain is more efficient if it’s more coordinated.”

However, streamlined operations and bulk purchasing won’t save a company if the market is in “structural decline,” as Cook said.

Cook would expect the new company to reduce production, and shift it around to take advantage of the most efficient machines, to keep supply in line with demand. A large company with 11 mills and 26 paper machines is better able to absorb that shock than a smaller company.

“I think everybody expects there will be some machine closures,” Cook said. “That doesn’t necessarily mean mills will close, but the conventional wisdom in the industry is there’s too much coated paper and some will have to close if prices want to be maintained to allow these mills to be profitable.”

Nathaniel Garnick, a Verso spokesman, told the BDN, “there are no plans to close any mills. However, it is too early to provide specifics on how the integration process will play out.”

Any mills at risk?

Are the Maine mills at risk? No one would venture a guess. The mills in Rumford, Jay and Bucksport are older in comparison to their counterparts in the southern United States and Asia — the newest machine among the three mills was built in 1980. But the mills do have several things going for them, including proximity to large amounts of high-quality fiber and the fact all have integrated pulp mill operations.

The Maine mills also have benefited from recent investments. NewPage since 2005 has invested more than $105 million in equipment and technologies at the Rumford mill, while Verso spent $42 million in 2012 on a biomass boiler in the Bucksport mill.

Cook called the Maine mills “some of the most efficient, low-cost facilities in North America.”

Another factor weighing in Maine’s favor is that Verso would absorb NewPage and not the other way around.

“Verso as it’s currently structured has more than half of its mills in Maine, so they know Maine,” said John Williams, president of the Maine Pulp and Paper Association. “That’s a positive thing.”

The biggest negative factor in Maine is the high cost of importing natural gas during the winter months, Cook said. Due to a lack of pipeline capacity into New England, natural gas prices spike during periods of high demand. Last winter, Verso ’s natural gas bill skyrocketed and this year the company cited high gas prices when it shut down the Bucksport mill for two weeks at the end of this month.

Robert Rice, a professor of wood science at the University of Maine, has a more optimistic outlook. He believes the coated paper market’s struggles have been driven by the recession and that as the economy recovers, the market will stabilize.

“As the merger progresses there will be a period of instability and over a period of four or five years I would expect to see some machinery refurbished and improved and all existing machines, or most of the existing machines, back online and running at operating rates that are equal to what they are now,” Rice said.

The merger may not be approved as proposed.

“The odds are high,” Dillon said, that the U.S. Department of Justice will require the new Verso to shed some mills before approval to lessen the company’s domination of the coated paper market.

Even with all the uncertainty, Patrick, the Rumford senator and millworker, can only hope a new and stronger paper company will emerge and be better prepared for the future’s challenges.

“I’m hoping for the benefit of all Maine workers, the company does the right thing and maybe even waits for a while before they make any rash decisions,” Patrick said. “We’ve gone through this thing in Rumford before. … You just hope for the best.”