Orchids Paper Products Company
) sealed the partnership deal with Fabrica de Papel San Francisco,
S.A. de C.V., a leading tissue manufacturer in Mexico, previously
announced on May 5. The transaction, subject to customary closing
conditions, is being funded with a new term loan and a credit
agreement with the U.S. Bank National Association.
Under the agreement, Orchids Paper paid Fabrica a sum of $36.7
million, with $20 million through shares of Orchids' common stock
and the remaining in cash. The agreement will allow Orchids Paper
to establish a strategic foothold in the western U.S.
Orchids Paper, an integrated manufacturer of tissue paper products,
has acquired Fabrica's current business in the U.S., thereby
getting access to an annual capacity of 18,000 metric tons in order
to meet consumer demand in the value, premium and ultra-premium
segments in the U.S. market. The alliance also carries an option
wherein Orchids Paper can further buy 7,000 metric tons in each of
the first 2 years.
The production of tissue products will be carried out at Fabrica's
facility in Mexicali, Mexico and then shipped directly to the U.S.
customers. Further, Fabrica has agreed to sign a non-compete
agreement in the U.S. and grant an exclusive license to Orchids
Paper for using some of its trademarks in the country.
Orchids Paper's association with Fabrica will help it achieve the
goal of becoming a national leader in the value, premium and
ultra-premium tiers of the consumer tissue market. The deal will
permit Orchids Paper to operate in the lucrative Mexican market
that was previously unfeasible due to cost challenges.
The use of Fabrica's manufacturing facilities will allow Orchids
Paper to cater to the existing customer base as well as new clients
in a cost-effective manner. Also, the alliance is expected to
generate similar operating margins as earned from the products
presently manufactured in Orchids' Oklahoma facility.
Orchids Paper seems well placed to capitalize on this expansion
opportunity and create long-term value for shareholders.
Orchids Paper presently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the Basic Materials sector include
Agnico Eagle Mines Limited
Kumba Iron Ore Ltd.
Compass Minerals International Inc.
), all of which sport a Zacks Rank #1 (Strong Buy).
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