January 24, 2017 / 12:00 PM / 3 years ago

U.S. packaging company WestRock to buy smaller rival for $1.39 billion

(Reuters) - U.S. packaging company WestRock Company (WRK.N) is to buy Multi Packaging Solutions International Ltd MPSX.N for about $1.39 billion in equity, the latest deal in the industry as companies globally seek to consolidate to combat weakening demand.

WestRock’s corrugated packaging is used in the industrial and consumer end markets, and the Multi Packaging deal will boost WestRock’s exposure to the fast growing healthcare market as well as the spirits, confectionary, and cosmetics markets.

“(Multi Packaging) brings not only revenue, but businesses that do have some modest growth potential,” CLSA Americas analyst Mark Connelly said.

Shares of WestRock, which said the deal would immediately add to its earnings and cash flow, rose 3.9 percent to a more than 16-month high of $55.22 on Tuesday.

Multi Packaging’s shares rose as much as 24 percent in heavy trading to a high of $17.85, compared with WestRock’s offer price of $18 per share.

The deal will also boost the presence of WestRock, the No. 2 U.S. packaging company behind International Paper (IP.N), in Europe, where several firms including Dutch company Schoeller Allibert‎ are on the market.

“ ... With low to negative growth in key markets like processed food, producers are moving beyond their core – and taking more risk in the process – to keep revenues moving higher,” Connelly said.

The containerboard industry – which makes materials for corrugated packages used to pack food, paper and a host of other household and consumer products – has not grown since it peaked in 1999, he estimated.

WestRock also said its first-quarter sales were largely unchanged year-over-year due to a fall in shipments for corrugated packages, its biggest business, in North America.

The company, created in 2015 by the $16 billion merger of MeadWestvaco and Rock-Tenn, has entered and exited several investments over the past year to streamline its portfolio and focus on its core paper and packaging businesses.

The Norcross, Georgia-based company said on Monday it sold its business that makes soap dispensers and perfume sprayers for about $1 billion.

WestRock said that including about $873 million of Multi Packaging’s net debt it will assume, its offer had an enterprise value of $2.28 billion.

WestRock plans to refinance the debt after the deal closes, expected in the third quarter.

PJT Partners served as financial adviser to WestRock, while Lazard advised on some matters related to the deal. BofA Merrill Lynch acted as Multi Packaging’s exclusive financial adviser.

Reporting by Rachit Vats, Richa Naidu and Ankit Ajmera in Bengaluru; Editing by Sayantani Ghosh and Savio D'Souza

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