Packaging Corporation of America
) recently inked a deal to acquire
) in a transaction worth $1.995 billion in cash. The transaction
is expected to close by the fourth quarter of 2013, subject to
regulatory approvals. The deal is expected to be immediately
accretive to Packaging Corporation, leading the stock price to
rise around 11% to $60.43 on the close of trading at Sep 16,
Based in Boise, Idaho, Boise produces a broad range of
packaging and paper products. Some of these packaging products
include linerboard and corrugating medium, corrugated containers,
sheets and protective packaging products, while its paper
products comprise imaging papers for the office and home,
printing and converting papers as well as papers used in
packaging, such as label and release papers.
According to the agreement, Packaging Corporation will acquire
Boise through one of its subsidiaries. The company will pay
$12.55 per share in cash for the acquisition. Moreover, the
transaction value includes Boise's outstanding debt of $714
The strategic acquisition will increase Packaging
Corporation's containerboard capacity by 42% to 3.7 million tons.
The deal is also likely to boost the company's corrugated
products volumes by 30% Moreover, Packaging Corporation will get
an upside in major fields such as mill grade optimization, sales
mix and cost reductions, lower transportation costs, corrugated
products optimization, and SG&A cost reductions. The company
is expected to generate a pre-tax benefit of approximately $105
million from these arenas within three years of the deal's
closure. Packaging Corporation expects to use the cash flows
generated from the combined companies to repay debt as well as
return value to shareholders.
The combined companies generated sales of $5.5 billion in the
last twelve months (LTM) ended Jun 30, 2013, with the packaging
business accounting for 75% of sales and the remainder being
contributed by Boise's paper business. Moreover, the combined
entity generated $879 million in earnings before interest, taxes,
depreciation and amortization (EBITDA), which excluded special
items, in the LTM ended Jun 30, 2013.
The transaction value represents an adjusted LTM EBITDA ($297
million excluding special items) multiple of 6.7x. Moreover,
including $105 million benefits derived from synergies, the
purchase value represents LTM EBITDA multiple of 5.0 x.
The deal by Packaging Corporation has consolidated the
industry. Experts believe that such transactions could further
open doors for similar mergers and acquisitions.
Packaging Corporation currently has a Zacks Rank #3 (Hold).
Some better-performing stocks in the consumer goods sector
Sealed Air Corporation
KapStone Paper and Packaging Corporation
). Both the mentioned stocks carry a Zacks Rank #1 (Strong
BOISE INC (BZ): Free Stock Analysis Report
KAPSTONE PAPER (KS): Free Stock Analysis
PACKAGING CORP (PKG): Free Stock Analysis
SEALED AIR CORP (SEE): Free Stock Analysis
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