US-based packaging companies Rock-Tenn and MeadWestvaco (MWV) have agreed to merge, creating a nearly US$ 16 billion industry heavyweight that will supply containers for everything from soda to appliances. The deal, announced in the last week of January 2015,
unites two large players in two separate segments of the packaging business. Rock-Tenn, which had sales of US$ 10 billion last year, is the second-largest North American seller
behind International Paper of the corrugated boxes used to carry pizza or express-delivery packages from Amazon.com and other internet merchandizers.
MWV, with an annual revenue of US$ 5.6 billion, holds the second spot behind Graphic Packaging Holding in the market for thinner paper cartons that hold ice cream, breakfast cereal and a 12-pack of beer. The proposed combined company will have the capacity to produce 13 million tonnes a year of paper to make packaging, and 42,000 employees in 30 countries, including plants in Brazil and India.
The deal is the latest in a string for Rock-Tenn, which has completed US$ 7 billion of acquisitions in the past decade, including its US$ 3.5 billion purchase of Smurfit-Stone Container in 2011 that helped catapult its market share of corrugated packaging to about 20%. But the rapid consolidation of the corrugated container-board market has left
Rock-Tenn with few options for further acquisitions, forcing the USA Georgia-based company to look elsewhere for significant deals.
The new company, which hasn’t yet been named, will be headed by Rock-Tenn chief executive Steven Voorhees. MWV chairman and CEO John Luke Junior will become chairman of the new board, which will have eight directors from Rock-Tenn and six from MWV. The deal is subject to the approval of the companies’ shareholders.
MWV has been methodically divesting businesses for the past decade. The USA Virginia-based company said earlier in January 2015 that it would spin off its chemicals business as a stand-alone public company, leaving MWV mostly with business lines of folded paperboard cartons. The new company will generate 50% of its annual sales from corrugated packaging and 43% from consumer packaging. MWV’s chemical business — which it plans to divest — will account for the remaining 7%.
The companies expect the merger to generate US$ 300 million in cost reductions in three years, primarily by eliminating overhead and administrative functions and consolidating purchasing. Both companies operate in slow-growing markets. Industry volumes of corrugated packaging in the US have grown little since 2000, as an exodus of US manufacturing weighed on demand for shipping boxes. Industry consumption of folded paper cartons has been growing by 1% or less annually.
Paper industry analysts say the merger is likely to attract other buyers to the folded carton market, which has industrywide annual sales in the US of about US$ 38 billion. RockTenn also competes in the folded carton market. The merger is expected to move Rock-Tenn and MWV’s sales ahead of Graphic Packaging. The merger may also be able to create the second-largest US packaging company behind International Paper, which has a market capitalization of nearly US$ 23 billion.
Under the terms of the deal, MWV shareholders will own 50.1% of the new company, while Rock-Tenn shareholders will own 49.9%. As of Friday’s close, Rock-Tenn had a market value of US$ 8.82 billion with MWV at US$ 7.51 billion. MWV will end up with a slightly larger share of the new company to keep the planned spin-off of its chemicals business tax-free. MWV brings a pension surplus of US$ 1.4 billion to the deal that is expected to offset a US$ 1 billion shortfall in Rock-Tenn’s pension plan. The pension surplus is forecast to save the new company US$ 550 million in pension costs over the next decade.
