Packaging Corporation of America (PKG) has agreed buy small rival Boise Inc. (BZ) for $12.55 per share in an all-cash transaction valued at $1.995 billion, which includes $714 million in outstanding debt of Boise. Excluding the debt, the deal values Boise at about $1.28 billion. The buy-out price represents a 26-percent premium to Boise’s closing price on Friday.
Lake Forest, Illinois-based Packaging Corp. is the U.S.’s fourth largest producer of containerboard and corrugated packaging products with sales of $3.02 billion in the 12 months ended June 30. Boise, based in the eponymous city in Idaho, makes a wide variety of packaging and paper products including corrugated containers and imaging papers for home and office. Boise generated $2.5 billion in sales in the 12 months to June 30. Across that same time span, the companies generated $879 million in combined earnings before interest, taxes, depreciation and amortization, excluding one-time items.
The boards of both companies have approved the transaction, which is expected to close in the fourth quarter.
In addition to a new presence in the Pacific Northwest for PCA, the company says that its containerboard capacity will expand by 42 percent to 3.7 million tons by adding Boise’s assets, including a planned expansion of a machine at Boise’s DeRidder, Louisiana mill. PCA’s corrugated products volume will grow by 30 percent with the acquisition.
PCA has over 100 facilities across 26 states and employs more than 8,500 people.
Synergies are estimated to generate pre-tax benefits of approximately $105 million and are expected to be fully realized within three years of closing.
“The acquisition is an excellent fit, both geographically and strategically, with unique and substantial synergies. The combined company is expected to generate strong financial results and strong cash flow which will be used to pay down debt as well as to continue to return value to our shareholders,” said Paul Stecko, executive chairman at Packaging Corp. of America, in a statement today.
Boise grew sales and margins in its packaging business during the second quarter, but the paper market continued to present challenges, with prices dropping in Q2. For the quarter, the packaging segment grew sales 6 percent year-over-year to $300.6 million. Sales in the paper segment declined 8 percent to $334.8 million. Excluding special items, the company reported net income of $10.5 million, or 10 cents per share.
“Our Board and management team have thoroughly evaluated a broad range of strategic options for Boise, and we believe this transaction is the best way to maximize value for our shareholders,” commented Carl Albert, chairman at Boise.
Packagaing Corp. of America was advised by Bank of America Merrill Lynch. BAC provided committed financing for the deal. Boise was advised by JP Morgan Securities LLC.
Shares of PKG are trading ahead by 7 percent at $58.32 in morning action, while shares of BZ are holding near the acquisition price for 26-percent gains.