Packaging Corp. of America Announces Agreement to Acquire Sacramento Container Corp. & Conversion of Wallula Mill Paper Machi...
August 21 2017 - 12:06PM
Business Wire
Packaging Corporation of America (NYSE: PKG) today announced
that it has entered into a definitive agreement to acquire
substantially all of the assets of Sacramento Container
Corporation, and 100% of the membership interests of Northern
Sheets, LLC and Central California Sheets, LLC in a cash-free,
debt-free transaction for a cash purchase price of $265 million.
The Company has also announced that it will discontinue production
of uncoated freesheet (UFS) and coated one-side (C1S) grades at its
Wallula, Washington mill in the second quarter of 2018 to begin the
conversion of its 200,000 ton-per-year No. 3 paper machine to a
400,000 ton-per-year high-performance 100% virgin kraft linerboard
machine.
The acquisition transaction is structured as a purchase of
assets resulting in a full step-up of the assets to fair market
value. Under the terms of the agreement, PCA will acquire full-line
corrugated products and sheet feeder operations in McClellan,
California and Kingsburg, California.
The value of the expected synergies, the tax benefit of the
step-up of assets and the operations’ EBITDA result in a purchase
price multiple of approximately five times EBITDA. The acquisition
will be accretive to earnings immediately.
PCA Executive Vice President Tom Hassfurther said, “The
acquisition of these well-capitalized facilities will further
enhance our operations both geographically and strategically. Also,
the customer-focused employees and strong management teams of
Sacramento Container, Northern Sheets and Central California Sheets
will be an excellent fit with PCA’s culture. This group has built a
successful business based on providing outstanding quality and
service to a wide array of customers located in the northern and
central regions of California.”
Closing is subject to certain customary conditions and
regulatory approval and is expected early in the fourth quarter of
2017. The company plans to finance the transaction with available
cash on hand.
The conversion of the No. 3 paper machine at the Wallula Mill is
planned for the second quarter of 2018 with an initial production
rate of approximately 60 percent of capacity. Ultimately,
production will increase to 1,150 tons per day once a new headbox,
forming section, and shoe press are added in the fourth quarter of
2018. The capital cost of the conversion is expected to be
approximately $150 million. Discontinuing paper operations at the
Wallula Mill will result in pre-tax cash severance and other
shutdown charges of approximately $20 - 25 million and
approximately $45 - 55 million of pre-tax noncash asset impairment
and accelerated depreciation charges. Charges of $25 - $35 million
are expected to be recorded in the third quarter of 2017. The
Mill’s No. 2 paper machine will continue to produce 150,000
tons-per-year of semi-chemical medium.
PCA Chairman and CEO Mark Kowlzan said, “Our strategy is to
improve the overall profitability of the paper business for PCA by
focusing our people and investments on increasing our
competitiveness and ensuring a sustainable future in the office and
printing & converting markets with our mills in International
Falls, MN and Jackson, AL. In addition, at our current
containerboard integration rate of 95%, the low-cost conversion of
the No. 3 paper machine at our Wallula Mill provides us with much
needed linerboard capacity, allows us to integrate over 200,000
tons of containerboard to our Sacramento Container acquisition, and
enables further optimization and enhancement of our current mill
capacity and box plant operations. The conversion will
significantly enhance the mill’s profitability and viability.”
Paul LeBlanc, Vice President – Paper, added, “We will work
closely with our customers to ensure a smooth transition as we wind
down production of the current grades we make on our No. 3 paper
machine at Wallula. Throughout this transition, all customers will
continue to receive the high quality products and service they are
accustomed to.”
PCA is the fourth largest producer of containerboard and
corrugated packaging products and the third largest producer of
uncoated freesheet paper in the United States. PCA operates eight
mills and 93 corrugated products plants and related facilities.
Some of the statements in this press release are forward-looking
statements. Forward-looking statements include statements about
expected synergies or other benefits from the acquisition and mill
conversion activities, the expected costs of the mill conversion,
the timing of completion of the acquisition and mill conversion
activities, our future earnings and financial condition, our
industry and our business strategy. Statements that contain words
such as “ will”, “should”, “anticipate”, “believe”, “expect”,
“intend”, “estimate”, “hope” or similar expressions, are
forward-looking statements. These forward-looking statements are
based on the current expectations of PCA. Because forward-looking
statements involve inherent risks and uncertainties, the plans,
actions and actual results of PCA could differ materially. Among
the factors that could cause plans, actions and results to differ
materially from PCA’s current expectations include the following:
the impact of general economic conditions; conditions in the paper
and packaging industries, including competition, product demand and
product pricing; fluctuations in costs; the possibility of
unplanned outages or interruptions at our principal facilities; and
legislative or regulatory requirements, particularly concerning
environmental and tax matters, as well as those identified under
Item 1A. Risk Factors in PCA’s Annual Report on Form 10-K for the
year ended December 31, 2016 filed with the Securities and Exchange
Commission and available at the SEC’s website at “www.sec.gov”.
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Barbara SessionsPackaging Corporation of AmericaINVESTOR
RELATIONS: (877) 454-2509PCA’s Website: www.packagingcorp.com
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