RockTenn (NYSE:RKT) and Smurfit-Stone Container Corporation
(NYSE:SSCC) today announced that the Boards of Directors of both
companies have approved a definitive agreement under which
Smurfit-Stone will become a wholly owned subsidiary of RockTenn.
The aggregate consideration, consisting of 50% cash and 50%
RockTenn stock, is valued at $35 per-share of Smurfit-Stone common
stock, and represents a 27% premium to Smurfit-Stone’s closing
stock price on January 21, 2011. The aggregate equity value of the
transaction, based on the closing price of RockTenn’s common stock
on January 21, 2011, is approximately $3.5 billion.
This strategic transaction, unanimously approved by the Boards
of Directors of both companies, will create a $9 billion leader in
the North American paperboard packaging market. Upon closing,
RockTenn will maintain its headquarters in Norcross, GA.
Smurfit-Stone is one of the industry's leading integrated
containerboard and corrugated packaging producers and one of the
world’s largest paper recyclers. Smurfit-Stone has manufacturing
mill capacity of 7.0 million tons, and when combined, RockTenn will
have 9.4 million tons of total production capacity, including 7.5
million tons of mill production in the attractive containerboard
market.
RockTenn's Chairman and Chief Executive Officer, James A.
Rubright said, “RockTenn’s acquisition of Smurfit-Stone is another
major step in our transformation of RockTenn to be the most
respected company in our business with a laser focus on exceeding
our customers’ expectations and creating long term shareholder
value. The containerboard and corrugated packaging industry is a
very good business and U.S. virgin containerboard is a highly
strategic global asset. With this acquisition, RockTenn’s fiber
input ratio will be 55% virgin and 45% recycled. We believe this
transaction provides the greatest possible career opportunities for
our co-workers from both companies.”
Smurfit-Stone’s Chief Executive Officer Patrick J. Moore said,
“The Smurfit-Stone management team and the board of directors are
sharply focused on creating value for shareholders. This
transaction immediately achieves this objective, creating a
stronger combined company that is well positioned to deliver
long-term value to shareholders and high-quality, innovative
packaging solutions to its valued customers.”
Combined RockTenn and
Smurfit-Stone
- #2 producer of North American
containerboard
- #2 producer of coated recycled
board
- Management team with strong record of
shareholder value creation and excellent record of integrating
acquisitions
- Balanced fiber input mix with 55%
virgin fiber and 45% recycled fiber
- Expands Rock-Tenn’s geographic
footprint to the Midwest and West Coast
- Opportunity to recognize benefits from
approximately $500 million of NOLs at Smurfit-Stone
- Conservative capital structure with
significant liquidity
- Opportunity to improve results through
cost reduction and capital investment
Transaction Summary
Smurfit-Stone will become a wholly owned subsidiary of RockTenn.
For each share of Smurfit-Stone common stock, Smurfit-Stone
stockholders will be entitled to receive 0.30605 shares of RockTenn
common stock and $17.50 in cash, representing 50% cash and 50%
stock. The aggregate consideration is $35 per Smurfit-Stone common
share. The consideration represents a 27% premium to
Smurfit-Stone’s closing stock price on January 21, 2011.
The aggregate purchase price being paid for Smurfit-Stone’s
equity in the transaction is approximately $3.5 billion, consisting
of approximately $1.8 billion of cash and the issuance of 30.9
million shares of RockTenn common stock. Following the acquisition,
RockTenn shareholders will own approximately 56% and Smurfit-Stone
shareholders will own 44% of the combined company.
In addition to the equity consideration, RockTenn will assume
Smurfit-Stone’s net debt and pension liabilities. As of December
31, 2010 Smurfit-Stone’s net debt was $0.7 billion and its pension
liabilities were $1.1 billion ($0.7 billion after-tax). RockTenn
has received $3.7 billion in committed bank financing from Wells
Fargo Bank N.A., Rabobank and SunTrust Bank to finance the cash
portion of the transaction, to refinance existing debt and to
provide liquidity for the combined operations.
The purchase price, including Smurfit-Stone’s net debt and
after-tax pension liability as of December 31, 2010, represents a
multiple of 6.1x Smurfit-Stone’s annualized adjusted EBITDA of $820
million for the three months ended December 31, 2010.
The transaction is expected to close in the second calendar
quarter of 2011 and is subject to customary closing conditions,
regulatory approvals, as well as approval by both RockTenn and
Smurfit-Stone stockholders.
Advisors
Wells Fargo Securities acted as exclusive financial advisor to
RockTenn and King & Spalding LLP acted as legal counsel.
Smurfit-Stone's financial advisor was Lazard and its legal advisor
was Wachtell, Lipton, Rosen & Katz.
Conference Call and
Webcast
RockTenn will host a conference call to discuss our results of
operations for the first quarter of fiscal 2011, our acquisition of
Smurfit-Stone Container Corporation and other topics that may be
raised during the discussion at 8:30 a.m., Eastern Time, on Monday,
January 24, 2011. The conference call will be webcast live with an
accompanying slide presentation, along with a copy of this press
release, at www.rocktenn.com.
Conference Call and Webcast
Monday, Jan. 24, 2011 – 8:30 a.m. Eastern Time
- Conference call number: U.S. (888)
790-4710
- Passcode: ROCKTENN (Please dial in 10
minutes before conference call start time)
- The call will also be webcast and
available at: www.rocktenn.com
Replays
- A replay of the conference call will be
available through March 15, 2011 at U.S. (866) 351-2785
- Passcode: ROCKTENN
- A replay of the webcast will be
available at www.rocktenn.com
About RockTenn Company
RockTenn (NYSE:RKT) is one of North America's leading
manufacturers of paperboard, containerboard and consumer and
corrugated packaging, with annual net sales of $3 billion.
RockTenn's 10,400 employees are committed to exceeding their
customers' expectations - every time. The Company operates
locations in the United States, Canada, Mexico, Chile and
Argentina. For more information, visit www.rocktenn.com.
About Smurfit-Stone Container
Corporation
Smurfit-Stone Container Corporation is one of the industry's
leading integrated containerboard and corrugated packaging
producers and one of the world's largest paper recyclers.
Smurfit-Stone generated net sales of $6.3 billion in 2010, has led
the industry in safety every year since 2001, and conducts its
business in compliance with the environmental, health, and safety
principles of the American Forest & Paper Association. The
company is a member of the Sustainable Forestry Initiative®.
Cautionary Statement Regarding Forward-Looking
Information
This document contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are typically identified by words or
phrases such as “may,” “will,” “anticipate,” “estimate,” “expect,”
“project,” “intend,” “plan,” “believe,” “target,” “forecast,” and
other words and terms of similar meaning. Forward-looking
statements involve estimates, expectations, projections, goals,
forecasts, assumptions, risks and uncertainties. RockTenn and
Smurfit-Stone caution readers that any forward-looking statement is
not a guarantee of future performance and that actual results could
differ materially from those contained in the forward-looking
statement. Such forward-looking statements include, but are not
limited to, statements regarding the anticipated closing date of
the transaction, the successful closing of the transaction and the
integration of Smurfit-Stone as well as opportunities for
operational improvement including but not limited to cost reduction
and capital investment, the strategic opportunity and perceived
value to RockTenn and Smurfit-Stone’s shareholders of the
transaction, the opportunity to recognize benefits from
Smurfit-Stone’s NOLs, the transaction’s impact on, among other
things, RockTenn’s business mix, margins, transitional costs and
integration to achieve the synergies and the timing of such costs
and synergies and earnings. With respect to these statements,
RockTenn and Smurfit-Stone have made assumptions regarding, among
other things, whether and when the proposed transaction will be
approved; whether and when the proposed transaction will close; the
availability of financing on satisfactory terms; the amount of debt
RockTenn will assume; the results and impacts of the acquisition;
preliminary purchase price allocations which may include material
adjustments to the preliminary fair values of the acquired assets
and liabilities; economic, competitive and market conditions
generally; volumes and price levels of purchases by customers;
competitive conditions in RockTenn and Smurfit-Stone’s businesses
and possible adverse actions of our respective customers,
competitors and suppliers. Further, Rock-Tenn and Smurfit-Stone’s
businesses are subject to a number of general risks that would
affect any such forward-looking statements including, among others,
decreases in demand for their products; increases in energy, raw
materials, shipping and capital equipment costs; reduced supply of
raw materials; fluctuations in selling prices and volumes; intense
competition; the potential loss of certain customers; and adverse
changes in general market and industry conditions. Such risks and
other factors that may impact management’s assumptions are more
particularly described in RockTenn and Smurfit-Stone’s filings with
the Securities and Exchange Commission, including under the caption
“Business – Forward-Looking Information” and “Risk Factors” in
RockTenn’s Annual Report on Form 10-K for the most recently ended
fiscal year and “Business – Risk Factors” and “Forward-Looking
Information” in Smurfit-Stone’s Annual Report on Form 10-K for the
most recently ended fiscal year. The information contained herein
speaks as of the date hereof and neither RockTenn nor Smurfit-Stone
have or undertake any obligation to update or revise its
forward-looking statements, whether as a result of new information,
future events or otherwise.
Additional Information and Where to Find It
In connection with the proposed transaction, RockTenn and
Smurfit-Stone will be filing documents with the Securities and
Exchange Commission (the “SEC”),
including the filing by RockTenn of a registration statement on
Form S-4 that will include a joint proxy statement of RockTenn and
Smurfit-Stone that also constitutes a prospectus of RockTenn.
RockTenn and Smurfit-Stone stockholders are urged to read the
registration statement on Form S-4 and the related joint proxy
statement/prospectus when they become available, as well as other
documents filed with the SEC, because they will contain important
information. The final joint proxy statement/prospectus will be
mailed to stockholders of RockTenn and stockholders of
Smurfit-Stone. Investors and security holders may obtain free
copies of these documents (when they are available) and other
documents filed with the SEC at the SEC’s web site at www.sec.gov,
or by contacting John Stakel, VP-Treasurer, RockTenn Investor
Relations at (678) 291-7901 or Smurfit-Stone Investor Relations at
(314) 656-5553 or Smurfit-Stone Media Relations at (314)
656-5827.
Participants in the Merger Solicitation
RockTenn, Smurfit-Stone and their respective directors,
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies in
respect of the transaction. Information concerning RockTenn’s
executive officers and directors is set forth in its definitive
proxy statement filed with the SEC on December 17, 2010.
Information concerning Smurfit-Stone’s executive officers and
directors is set forth in its annual report on Form 10-K for the
year ended December 31, 2009, which was filed with the SEC on March
2, 2010, and in its current report on Form 8-K filed on July 7,
2010. Additional information regarding the interests of
participants of RockTenn and Smurfit-Stone in the solicitation of
proxies in respect of the transaction will be included in the
above-referenced registration statement on Form S-4 and joint proxy
statement/prospectus when it becomes available. You can obtain free
copies of these documents from RockTenn and Smurfit-Stone using the
contact information above.
Pro Forma Adjusted EBITDA (as defined)
Pro Forma Adjusted EBITDA is calculated as the sum of RockTenn’s
Credit Agreement EBITDA and Smurfit-Stone’s Adjusted EBITDA plus
pro forma adjustments consistent with the two. Our definitions of
Pro Forma Adjusted EBITDA may differ from other similarly titled
measures at other companies.
Credit Agreement EBITDA
RockTenn’s “Credit Agreement EBITDA” is calculated in accordance
with the definition contained in our existing Senior Credit
Facility. Credit Agreement EBITDA is generally defined as
Consolidated Net Income plus: consolidated interest expense, income
taxes of the consolidated companies determined in accordance with
GAAP, depreciation and amortization expense of the consolidated
companies determined in accordance with GAAP, certain non-cash and
cash charges incurred, and charges taken resulting from the impact
of changes to accounting rules related to the expensing of stock
options.
Smurfit-Stone’s Adjusted EBITDA
Smurfit-Stone’s EBITDA is generally defined as Net income plus:
interest expense, income taxes, interest expense, net and
depreciation, depletion and amortization. Adjusted EBITDA is
defined as EBITDA adjusted for reorganization items, restructuring
charges and gain or loss on disposal of assets.
The following pro forma financial information is based on the
pro forma combination of the three months ended December 31, 2010
results for Rock-Tenn and Smurfit-Stone and an estimate of a
preliminary purchase price allocation. The pro forma diluted income
per share of combined Rock-Tenn was $1.48 per share indicating an
accretion of $0.21 per share for the three months ended December
31, 2010.
Summary Financial Results
(In millions, except per share data)
Historical
RockTenn
Pro Forma
Combined
Net Sales $ 761.1 $ 2,389.1 Credit Agreement EBITDA / Pro
Forma Adjusted EBITDA
$
132.1
$
336.9
Net Income $ 50.3 $ 105.0 Diluted Earnings Per Share $ 1.27 $ 1.48
Pro Forma Accretion
$ 0.21
Net sales for the combined entity are subject to further
modification to identify and eliminate intercompany sales. Pro
forma adjustments to net income primarily consist of adjustments to
depreciation and amortization and interest expense related to the
purchase price, an adjustment to add back Smurfit-Stone’s
reorganization items and an adjustment to eliminate restructuring
costs. Not all of these adjustments would be reflected in the pro
forma financial information included in a document filed with the
Securities and Exchange Commission.
Set forth below is a reconciliation of Credit Agreement EBITDA
and Pro Forma Adjusted EBITDA for the three months ended December
31, 2010, to the most directly comparable GAAP measure,
Consolidated Net Income. We have made certain reclassifications to
Smurfit-Stone amounts or descriptions to conform to our
presentation.
RockTenn
Smurfit-
Stone
Pro Forma
Adj.
Pro Forma
Combined
Consolidated Net Income $ 51.3 $ 49.0 $ 5.7 $ 106.0
Interest Expense, net 15.1 22.0 2.4 39.5 Income Taxes 27.3 27.0 3.2
57.5 Depreciation and Amortization 36.7 85.0 12.1 133.8 Additional
Permitted Charges and other
1.7
22.0 (23.6 )
0.1 Credit Agreement EBITDA / Adjusted EBITDA / Pro
Forma Adjusted EBITDA
$ 132.1
$ 205.0 $ (0.2
) $ 336.9
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