Rock-Tenn to Acquire Smurfit-Stone for $3.5 Billion

Rock-Tenn Co. agreed to buy Smurfit- Stone Container Corp. for $3.5 billion, making it North America’s second-biggest containerboard producer as demand rebounds.

Rock-Tenn bid $35 a share in cash and stock for Chicago- based Smurfit-Stone, Norcross, Georgia-based Rock-Tenn said today in a statement. The proposed transaction was approved by the boards of both companies, Rock-Tenn said.

The deal will expand Rock-Tenn’s operations to the U.S. Midwest and West Coast, allowing it to benefit from rising prices and increased consumption of containerboard. Demand for the specialized paper, used to make shipping boxes, revived last year as the global economy emerged from a recession.

“Rock-Tenn’s emergence as Smurfit’s acquirer is a surprise,” Mark Wilde, a New York-based analyst at Deutsche Bank AG, said in a note to clients, referring to Rock-Tenn’s relatively small containerboard business. Still, the company “has emerged as among the sector’s best managed players, both financially and operationally,” Wilde said.

Smurfit-Stone rose $7.84, or 28 percent, to $35.36 as of 9:36 a.m. in New York Stock Exchange composite trading. Rock- Tenn climbed $3.68, or 6.4 percent, to $60.86.

The bid is a 30 percent more than Smurfit-Stone’s volume- weighted average price over the 20 days through Jan. 21. That compares with an average 13 percent premium among deals in the global paper-container industry announced in the past 12 months, according to data compiled by Bloomberg.

Source: Bloomberg

A file photo of corrugated cardboard production. Close

A file photo of corrugated cardboard production.

Source: Bloomberg

A file photo of corrugated cardboard production.

Cardboard Overcapacity

The global economic crisis left Memphis, Tennessee-based International Paper Co., the world’s largest paper maker, and its peers grappling with overcapacity as buyers reduced purchases of cardboard boxes and packaging. Smurfit-Stone declared bankruptcy in 2009 and emerged last year after closing mills and cutting more than 10 percent of its workforce. Unsecured creditors ended up with 96 percent of its new equity.

“Western containerboard and corrugated boxes remain an unappealing proposition for equity investors due to a limited growth profile and a history of excess capacity,” Christian Georges, a London-based analyst at Olivetree Securities Ltd., said today by e-mail. The Rock-Tenn agreement is a “relevant consolidating step in the U.S. to create the second-largest domestic player behind International Paper.”

Smurfit-Stone has mill capacity of 7 million metric tons, according to the statement. Rock-Tenn will have capacity of 9.4 million tons after the transaction is complete, including 7.5 million tons of containerboard mill output, it said.

Price Gain

The average selling price for all paperboard and containerboard grades increased by $73 a ton in the first quarter of fiscal 2011 from a year earlier, Rock-Tenn said in a separate statement today.

Rock-Tenn said the purchase values Smurfit-Stone at 6.1 times earnings before interest, tax, depreciation and amortization, including the assumption of a pension liability and based on annualized adjusted earnings from the three months through December.

Billionaire Graeme Hart’s Rank Group Ltd. paid 8.4 times Ebitda in its $4.5 billion acquisition of Pactiv Corp. in 2010, Bloomberg data show. Rank paid a 33 percent premium for Pactiv, based on the 20-day average price through to May 14, the day before talks were disclosed.

Wells Fargo Securities LLC is advising Rock-Tenn and Lazard Ltd. is advising Smurfit-Stone.

North American demand for cardboard packaging is up 6 percent from the low point during the recession, International Paper Chief Executive Officer John Faraci said Oct. 27. Demand remains 4 percent below pre-recession levels in early 2008, he said.

To contact the reporters on this story: Elisabeth Behrmann in Sydney at; Thomas Biesheuvel in London at

To contact the editor responsible for this story: Mike Millard at

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