UPDATE 3-Clearwater Paper to buy Cellu Tissue for $247 million

Thu Sep 16, 2010 3:23pm EDT

* $12 per share offer is at a 51 pct premium

* Cellu Tissue shrs up 50 pct, Clearwater stock down 2 pct

* Deal to immediately add to Clearwater's earnings

* Cellu Tissue's largest shareholder, CEO back deal (Recasts, adds conference call details, analyst comments, updates share movement)

By Vaishnavi Bala

BANGALORE, Sept 16 (Reuters) - Clearwater Paper Corp (CLW.N) agreed to buy debt-laden Cellu Tissue Holdings Inc CLU.N for about $247 million, eight months after it went public, to expand into eastern United States.

Analysts said the deal was a big positive for Clearwater and gave the company geographic diversity.

"Clearwater has been strongest in the west coast market and Cellu Tissue has a presence in the eastern United States," Stephens analyst Eric Hallowaty said by phone.

"The combined entity has the potential to create a differentiated coast-to-coast provider of tissue, across multiple levels of quality, which we believe is a considerable competitive advantage for the combined enterprise," R.W. Baird analyst Ghansham Panjabi said.

On a conference call with analysts, Clearwater said the deal would add 182,000 tons to its current tissue converting capacity of 213,000 tons. It sees the deal adding 247,000 tons to its current tissue hardroll capacity of 225,000 tons.

The deal, which is at a 51 percent premium to Cellu Tissue's Wednesday close, will also see Clearwater, valued at $840-million, take on debt of about $255 million.

As of May, Cellu Tissue had total liabilities of $398.4 million, including long-term debt of about $242 million, versus its total market capitalization of $160 million.

The deal ends a rough ride for Cellu Tissue, whose shares have been in free fall since the company went public in January, touching a low of $7.32 in June.

While Thursday's deal comes at a huge premium, Clearwater is still paying less than the $12.30 at which Cellu Tissue debuted in January.

Alpharetta, Georgia-based Cellu Tissue makes specialty paper products used in everything from toilet paper to paper towels.

Shares of Cellu Tissue shot up 50 percent to $11.90 on 65 times the normal trading volumes, making them the top percentage gainers Thursday on the New York Stock Exchange.

Clearwater shares, which have risen over 45 percent since January, were down about 2 percent at $71.20.

Clearwater said the deal will immediately add to its earnings and it intends to fund the deal with cash on hand and $350 million of debt financing.

The combined company is expected to generate annual revenue of about $1.9 billion, which is higher than the $1.36 billion analysts currently expect Clearwater to report in 2010.

Cellu Tissue's Chief Executive Russell Taylor and its largest shareholder, private-equity firm Weston Presidio V.L.P., together own about 56 percent of the company's stock and have agreed to vote in favor of the deal.

Clearwater's financial adviser was BofA Merrill Lynch, while Goldman, Sachs & Co acted as financial adviser to Cellu Tissue. (Reporting by Savio D'Souza, Adveith Nair and Vaishnavi Bala in Bangalore; Editing by Roshni Menon)

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