Smurfit Kappa to Acquire Orange County Container Group
Smurfit Kappa Group (SKG), Ireland, one of the world's largest integrated manufacturers of paper-based packaging products with operations in Europe and Latin America, will acquire U.K.-based Orange County Container Group (OCCG) for a total cash consideration of $340 million (EUR 260 million). OCCG is a private corrugated and containerboard manufacturer with operations in Northern Mexico and the Southern U.S. It employs 2,800 people (2,000 of whom are employed in Mexico and 800 in the U.S.), and is expected to generate $53 million of EBITDA for the full year 2012. OCCG's strong strategic fit with SKG's existing businesses is expected to deliver at least $14 million of synergies by the end of year two.
The $340 million cash consideration will be funded from the Group's existing cash resources. The transaction is expected to be completed in the fourth quarter of this year, subject to customary completion conditions and regulatory approval.
OCCG produces, markets, and sells high graphics and conventional corrugated containers, as well as point-of-purchase displays. It operates eight main packaging facilities in Mexico, including two box plants, three sheet plants, and three fulfillment centers, along with seven distribution centers in Mexico. It also has two packaging facilities in the southern part of the U.S., consisting of one box and one sheet plant. The Dallas, Texas, mill produces 290,000 metric tpy of recycled containerboard on two paper machines. The company operates seven wholly owned recycling centers in Texas, Oklahoma, and Arkansas, which is a significant strategic resource and provides security of supply of recovered paper for the mill and of containerboard for the corrugated operations.
The business has well maintained and well invested assets following a capital investment program of more than $85 million in the past four years. The gross assets of the business being acquired are approximately $325 million, and the profit before tax in 2011 was $6.3 million.
The transaction delivers a range of strategic and financial benefits for SKG including:
- Further strengthens SKG's position in higher growth markets
- SKG's containerboard and corrugated Mexican business includes three paper machines and nine box plants with containerboard production of approximately 295,000 metric tpy and corrugated shipments of 500 million square meters for the 12 months to June 2012
- Complements SKG's Mexican business with limited customer or geographic overlap
- Provides SKG with a pro-forma total market share of approximately 17% of the Mexican market
- Enhanced geographic diversity, with SKG's non-European exposure expected to increase from 23% to 26% of Group EBITDA
- OCCG's integrated model provides security of supply and consistency of service to packaging customers – particularly under-pinned by a substantial level of "grip" on recovered paper supply
- OCCG comprises well invested assets and well run businesses delivering strong growth
- Synergy benefits of at least $14 million expected within two years
- Pro-Forma FY 2012 multiple of 6.4x before synergies (5.1x after synergies)
- Expected returns for SKG shareholders are attractive – earnings accretive on completion
- Transaction funded through SKG's existing cash resources
- SKG's 2012 year-end net debt to EBITDA multiple post completion is expected to be well within the Group's stated target of less than three times.
SKG, a producer of recycled containerboard in Europe, notes that the transfer of some of its European recycled containerboard production experience and expertise will enhance the efficiency and production capability of OCCG's mill.
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