Packaging companies Rock-Tenn Co RKT.N and MeadWestvaco Corp MWV.N agreed to form a combined $16 billion company to take on market leader International Paper Co (IP.N) in the United States and abroad.
Shares of MeadWestvaco and Rock-Tenn rose to record highs.
Demand for the corrugated boxes made by both companies has risen sharply as internet shopping has taken off. Worldwide e-commerce sales are expected to have risen 20 percent to $1.5 trillion last year, according to industry data firm eMarketer.
The merger, announced by both companies on Monday, will create the second-largest U.S. packaging company behind International Paper, which has a market capitalization of nearly $23 billion.
MeadWestvaco shareholders will have a 50.1 percent stake in the new company, which will be named before the deal closes and based in Richmond, Virginia, where MeadWestvaco is headquartered.
"There's significant opportunity around the world for us to grow as we see more activity in emerging markets," MeadWestvaco Chief Executive John Luke said on a call with analysts, citing India, Brazil and China as growth regions.
MeadWestvaco shareholders will receive 0.78 shares of the new company for each share held.
Rock-Tenn shareholders can receive either one share of the new company for each share held or a cash amount equal to the average price of Rock-Tenn shares over a five-day period ending three trading days before the deal closes.
Rock-Tenn and MeadWestvaco each reported better-than-expected quarterly profit on Monday. Norcross, Georgia-based Rock-Tenn's shipments of corrugated boxes rose about 11 percent in the quarter ended Dec. 31.
Rock-Tenn Chief Executive Steven Voorhees will lead the new company. Luke, his counterpart at MeadWestvaco, will become non-executive chairman.
MeadWestvaco, which decided this month to spin off its chemicals business after pressure from activist investor Starboard Value LP, said the separation would be completed after the merger.
The companies said the structure of the deal would help retain the "favorable tax attributes" related to this spinoff.
Blackstone Advisory Partners LP and Cravath, Swaine & Moore LLP advised Rock-Tenn on the deal. MeadWestvaco's advisers were BofA Merrill Lynch, Goldman Sachs & Co and Wachtell, Lipton, Rosen & Katz.
MeadWestvaco shares were up 14 percent to $51.33 in afternoon trading. Rock-Tenn's stock was up 6 percent at $66.78.
(Writing by Sweta Singh; Editing by Saumyadeb Chakrabarty)