RockTenn to buy Smurfit Stone for $3.5 billion
Packaging and paper company RockTenn Co has agreed to buy bigger rival Smurfit-Stone Container Corp for $3.5 billion in cash and stock seven months after Smurfit emerged from bankruptcy with less debt and higher profit potential.
The deal, announced on Sunday, will triple RockTenn's annual revenue to more than $9 billion and make the combined company the second-largest containerboard producer in North America after International Paper Co.
Under the merger approved by the boards of the two companies, RockTenn will pay $35 in cash and stock per each Smurfit-Stone common share, representing a 27 percent premium to Smurfit-Stone's closing price of $27.52 on Friday.
With the deal, RockTenn Chairman and Chief Executive James Rubright is making a big bet that demand for containerboard will pick up as the U.S. economy emerges out of the recession.
Demand for paper and packaging has risen in recent months as consumers increase spending on everyday goods that are shipped and sold using packaging, after a near decade-long slump caused by weak demand and overcapacity.
Under the terms of the deal, RockTenn is offering 50 percent cash and 50 percent stock for Smurfit -- or $17.50 in cash and 0.30605 RockTenn share for each Smurfit share.
Norcross, GA-based RockTenn will also take on Smurfit-Stone's net debt and pension liabilities, which amounted to $1.8 billion at the end of 2010.
Following the transaction, RockTenn shareholders will own approximately 56 percent and Smurfit-Stone shareholders will own 44 percent of the combined company.
The deal is expected to close in the second quarter pending regulatory and shareholder approval.
Smurfit Stone was facing a leadership vacuum after Chief Executive Patrick Moore had notified the company's board in late 2009 that he planned to retire within a year after Smurfit emerged from bankruptcy.
The Chicago-based company, which filed for bankruptcy in January 2009 after a rise in raw materials costs coincided with a drop in demand and tight credit markets, emerged from 17 months of bankruptcy proceedings on June 30 last year after wiping out more than $3 billion of debt.
Wells Fargo Securities was the exclusive financial adviser to RockTenn, while Lazard advised Smurfit-Stone.
(Additional reporting by Michael Erman; Editing by Anshuman Daga)
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