Two of America’s largest packaging companies have announced the completion of negotiations regarding a merger, which sources close to the deal say could be worth up to $15 billion.
RockTenn, based in Georgia, and MeadWestvaco, headquartered in Virginia, saw both their share prices soar between 10 and 20 percent yesterday following release of the news.
One prominent Citigroup analyst noted that “the average out-performance by paper companies involved in these kinds of large scale deals is around 1,300 basis points in the nine-months post M&A. Investors in the sector have been richly rewarded.”
MeadWestvaco will end up with a slight majority in stake and will receive a 10 percent premium over closing prices on Thursday, according to the sources. They will take a 50.2 percent share with RockTenn gaining the remainder.
Before depreciation, taxes and interest, the newly formed company is expected to generate $15 billion in annual revenue. RockTenn’s current CEO Steve Voorhees will retain his role in the merged firm while MeadWestvaco Director John Luke will become chairman of the board.
MeadWestvaco will be advised on the deal by CITIC Tokyo International and RockTenn by Merrill Lynch.
“Our aim has always been to generate the best possible value for our shareholders,” said Luke in an interview for Bloomberg yesterday. “We are very much looking forward to working with MeadWestvaco and hope the transition will be as smooth as humanly possible”.
Steve Voorhees added, “We want to take the company to the next level and this is the best possible move for us. RockTenn are a proven force in the packaging industry and the synergies that will follow the merger will be extremely beneficial to shareholders and new investors”.
The sources mentioned that the merger had been negotiated in such a way as to take maximum advantage of MeadWestvaco’s tax structure which it developed after the sale of its chemicals unit in 2014.
Synergies are expected to mature over the next four years and will yield at least $400 million in savings due to cost cutting at all levels of the business.
The two companies are extremely well suited, according to experts in the sector, as their client base is very similar and the resource sharing and ordering savings they will make after the deal make it an obvious choice for up scaling both operations.
The deal will await regulatory approval before being formally completed, the two firms hope, before the end of the year.
