ABD Acco Brands Corp.

MeadWestvaco Corporation(MWV) has decided to spin-off the Consumer & Office Products business in a new entity on April 24, 2012. The decision follows the company’s announcement in November last year to merge the new entity with the office supply manufacturer, ACCO Brands Corporation (ABD). The deal was valued at $860 million.

Under the merger agreement, for each share of MeadWestvaco, its shareholders will own 0.33 share of ACCO Brands. At the completion of the agreement, the shareholders of MeadWestvaco will own a 50.5% stake in the office products company and the company will receive $460 million of cash, both of which are qualified as tax-free distribution. Moreover, ACCO Brand will change its ticker symbol from “ACCO” to “ABD” as part of the deal.

It is expected that the spin-off and the merger process will be closed by April 30 and become effective from May 1. There will be two markets in the New York Stock Exchange for MeadWestvaco common stock – a regular way market and an ex-distribution market – from April 24 to the expected closing date.

With the spin-off, MeadWestvaco will be able to intensify its focus on its targeted global packaging markets. The initiative will also divert the company's resources to its core business.

Although MeadWestvaco’s total sales increased 6% year over year to $6.1 million in 2011, the company was hard hit by the ongoing global crisis including weak housing and labor markets in U.S. as well as the financial crisis in Europe. These resulted in lower consumer confidence, tighter inventory management, and softer demand.

The decision to spin-off the office business was included in the strategic plans of MeadWestvaco to brave through the challenging market conditions. As part of the plan, the company decided to invest in the Packaging Resources segment, which is the highest revenue-earning segment with nearly 47% of total sales in 2011.

Recently, the company completed the acquisition of Polytop Corporation in order to increase its capabilities in the targeted packaging end markets. MeadWestvaco is hopeful that commercial excellence and opportunities of the packaging business in emerging markets will help in generating more than $1 million of additional revenues over the next three to five years. These initiatives are expected to position the company as the leader in the packaging industry.

However, the company faces intense competition in each of its businesses, in both domestic and international markets. It competes with many large, well-established companies like Bemis Company, Inc.(BMS) and Sealed Air Corporation (SEE)as well as some lower cost manufacturers. The strong competition could result in pricing and demand pressures, adversely affecting the company’s operating results.

The shares of MeadWestvaco currently retain a Zacks #3 Rank, implying a short-term “Hold” rating on the stock.

 
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