) announced that it will acquire Simpson Tacoma Kraft Paper Mill
located in Tacoma, Wash. from Simpson Lumber Company LLC, for
$343 million. The transaction is subject to customary closing
conditions and regulatory approvals.
The mill has two paper machines and two pulp dryers that make
various paper grades including containerboard, specialty kraft
paper and pulp. In 2013, the mill clocked total production of
465,000 tons. The Tacoma Kraft Mill also operates a 55-megawatt
green biomass fuel cogeneration facility and sells electricity
under a long-term contract. During the next three years, RockTenn
intends to invest $60 million in the mill and has entered into a
7-year wood chip supply contract with Simpson Lumber Company.
The purchase price of $343 million reflects an earnings before
interest, taxes, depreciation, and amortization (EBITDA) multiple
of less than 6 times of the mill's financial results for the year
ending Dec, 2013 and the expected operating efficiencies.
Rock-Tenn reported upbeat first-quarter fiscal 2014 (ended Dec
31, 2013) earnings on Jan 28. Adjusted earnings per share jumped
23% year over year to $1.66 from $1.35 in the year-earlier
quarter. Total revenue increased 3.3% year over year to $2,362.6
million, driven by higher pricing, partly offset by reduced
RockTenn's strong earnings growth reflects continued improvement
in its operating performance. Strong balance sheet and cash flow
will help in returning capital to shareholders through dividends
and stock repurchases.
For the rest of the fiscal year, RockTenn expects recovered fiber
markets to enjoy moderately higher pricing. Rock-Tenn's
investment in box plants, installation of new standard corrugated
box operating system and increase in domestic and export pricing
will help to boost profitability. The Tacoma Kraft Mill is a
strategic fit for RockTenn. Adding a mill in the West Coast will
enhance the company's ability to satisfy its West Coast customers
as well as generate significant operating efficiencies across its
Norcross, Ga.-based RockTenn is one of the leading integrated
manufacturers of corrugated and consumer packaging and recycling
solutions in North America. It operates in the U.S., Canada,
Mexico, Chile, Argentina and China.
Rock-Tenn currently holds a short-term Zacks Rank #3 (Hold).
Stocks with a favorable Zacks Rank in the paper and packaging
Resolute Forest Products Inc.
Stora Enso Oyj
), all of which hold a Zacks Rank #1 (Strong Buy).
RESOLUTE FOREST (RFP): Free Stock Analysis
ROCK-TENN CO (RKT): Free Stock Analysis
STORA ENSO -ADR (SEOAY): Get Free Report
UPM-KYMMENE ADR (UPMKY): Get Free Report
To read this article on Zacks.com click here.