TIDMSKG
SKG to acquire Orange County Container Group for US$340m (c.
EUR260m)
SKG.I SKG.L
Dublin, London | 24th September, 2012: Smurfit Kappa Group plc
('SKG' or the 'Group') one of the world's largest integrated
manufacturers of paper-based packaging products with operations in
Europe and Latin America, announces that it has agreed to acquire
Orange County Container Group (the "Business" or "OCCG") for a
total cash consideration of US$340 million (c. EUR260 million) (the
"Transaction").
OCCG is a private corrugated and containerboard manufacturer
with operations in Northern Mexico and the Southern United States
("US"). OCCG employs 2,800 people (2,000 of whom are employed in
Mexico), and is expected to generate US$53 million of EBITDA for
the full year ("FY") 2012. OCCG's strong strategic fit with SKG's
existing businesses is expected to deliver at least US$14 million
of synergies by the end of year 2.
The US$340 million cash consideration will be funded from the
Group's existing cash resources. It is anticipated that the
Transaction will complete in the fourth quarter of 2012 subject to
customary completion conditions and regulatory approval, and is
expected to be EPS accretive on completion.
Smurfit Kappa Group will host a conference call, for analysts
and institutional investors today, 24th September, at 15.00 BST
(10.00 ET). Dial in details to access this conference call are set
out at the end of this release.
Orange County Container Group | Transaction Highlights
-- Delivers EBITDA & EPS growth - acquisition will be earnings accretive
on completion
-- Excellent strategic fit and highly complementary with the Group's
existing Mexican business
-- Quality assets with highly skilled people
-- Identified synergy benefits - minimum of US$14 million
-- Strong and improving trading conditions within OCCG's markets
-- Financed from SKG's existing resources - represents a highly effective
use of some of SKG's cash balances
-- Transaction is within SKG's stated leverage guidance of below three
times
Gary McGann, Smurfit Kappa Group CEO, said:
"We are pleased to announce our agreement to acquire Orange
County Container Group. We look forward to welcoming the excellent
team from OCCG into the Smurfit Kappa Group and we are confident
that their skills and expertise will complement those of our
colleagues in the relevant markets.
The acquisition delivers immediate earnings growth for SKG and
significantly strengthens our existing position in the Mexican
market.
The continued strength of our operating performance and
consequent net debt reduction has increased the range of strategic
and financial options for the Group. The acquisition of OCCG
provides a complementary portfolio of well-invested assets and
quality people. This transaction further increases the contribution
of our existing successful Latin American business; providing us
with a very significant position within the key Maquiladora trading
region and substantially strengthening our position in the higher
growth Mexican market.
SKG has a proven track record of identifying, acquiring and
integrating businesses. This Transaction creates synergies for the
Group delivering value and earnings growth for our
shareholders."
Orange County Container Group | Scope of the Transaction
-- 8 main packaging facilities in Mexico comprising 2 box plants, 3 sheet
plants and 3 fulfilment centres
-- 7 distribution centres in Mexico
-- 2,800 employees (2,000 in Mexico; 800 in the United States)
-- 2 packaging facilities in the southern part of the United States
comprising 1 box and 1 sheet plant
-- A 290,000 tonne recycled containerboard mill in the southern part of
the United States
-- A substantial US based recovered paper collection system
About Orange County Container Group
OCCG is a leading integrated packaging manufacturer operating in
Northern Mexico and the Southern United States. OCCG produces,
markets and sells high graphics and conventional corrugated
containers, as well as point-of-purchase displays. The Business
also produces 290,000 tonnes of recycled containerboard on two
paper machines in Dallas. It operates seven wholly owned recycling
centres 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.
OCCG employs approximately 2,800 people of which 2,000 are based
in Mexico and 800 are based in the US. OCCG has a proven strong
management team and a quality workforce that will transfer to SKG
with the acquisition of the business and will add to the skill base
within SKG.
EBITDA, before synergies, for the 12 months to December 2012,
for OCCG is expected to be US$53 million. The Business has well
maintained and well invested assets following a capital investment
programme of over US$85 million in the past 4 years. The gross
assets of the Business being acquired are approximately US$325
million, and the profit before tax for the year to December 2011
was US$6.3 million.
Rationale for the Transaction
The Transaction is strategically and financially attractive for
SKG. The Group has a proven track record of identifying, acquiring
and integrating businesses and OCCG significantly strengthens SKG's
position in Mexico and gives the Group a small position in an
increasingly consolidated US market. The Transaction is expected to
be earnings accretive on completion. The Group has identified a
range of operational synergies. There is also significant scope to
transfer some of the Group's European recycled containerboard and
corrugated innovation and production experience to the OCCG mill
and corrugated operations. With the acquisition of a significant
recovered paper system in the southern part of the US the Group
increases its "grip" on substantial tonnage of this increasingly
important raw material, thereby under-pinning the security of our
raw material and paper supplies to our expanding Mexican packaging
business.
Specifically, 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 tonnes and corrugated
shipments of 500 million square metres 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 US$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 3
times
Assets
The Group is acquiring OCCG and its assets including its
production facilities; recycling centres; brands, trademarks; and
customer contracts. The employees in the Business will transfer to
the Group. The Group will not assume tax or pension liabilities or
financial indebtedness. The consideration is US$340 million payable
in cash on completion.
Transaction Financing
The Transaction will be financed from the Group's existing cash
resources and represents a highly effective use of some of SKG's
cash balances. Following the transaction, SKG's 2012 year-end net
debt to EBITDA multiple is expected to be well within the Group's
started target of less than 3 times.
The acquisition of OCCG will have no impact on the Group's
stated dividend policy which is to pay interim and final dividends
in October and May in each year in the approximate proportions of
one third and two thirds and to progressively improve the dividend
payout when earnings support it.
Synergy Benefits
The Group has identified synergies of at least US$14 million and
it is currently expected that these will be delivered by the end of
year 2. The synergy benefits primarily relate to the optimisation
of the combined businesses using the SKG benchmarking methodology
and optimising the efficiencies and productivity of the various
operations by implementing best practices.
The Group is the leading producer of recycled containerboard in
Europe and the transfer of some of SKG's European recycled
containerboard production experience and expertise will enhance the
efficiency and production capability of OCCG's mill.
In the packaging business the applications of SKG's bespoke
innovation tools and operational excellence methodologies is
expected to enhance the efficiency and quality of earnings of the
combined businesses.
Integration
It is expected that the Transaction will be completed in the
fourth quarter of 2012. The OCCG business will then be
progressively integrated with the Group's operations in Mexico.
Conference Call Details
Analysts & Institutional Investors
Smurfit Kappa Group will host a conference call, for analysts
and institutional investors today, 24th September, at 15.00 BST
(10.00 ET). Dial in details to access this conference call are
outlined below:
Ireland +353 (0) 1 436 4265
UK & Europe +44 (0) 208 817 9301
USA +1 718 354 1226
For further details, or for conference call replay numbers,
please contact FTI Consulting on the contact details at the end of
this release.
About Smurfit Kappa Group
Smurfit Kappa Group is a world leader in paper-based packaging
with operations in Europe and Latin America. Smurfit Kappa Group
operates in 21 countries in Europe and is the European leader in
containerboard, solidboard, corrugated, high-end consumer
packaging, and solidboard packaging and has a key position in
several other packaging and paper market segments, including
graphicboard and sack paper. Smurfit Kappa Group also has a growing
base in Eastern Europe, a bag-in-box facility in Canada and
operates in 9 countries in Latin America where it is the only pan
regional operator.
Forward Looking Statements
Some statements in this announcement are forward-looking. They
represent expectations for the Group's business, and involve risks
and uncertainties. These forward-looking statements are based on
current expectations and projections about future events. The Group
believes that current expectations and assumptions with respect to
these forward-looking statements are reasonable. However, because
they involve known and unknown risks, uncertainties and other
factors, which are in some cases beyond the
Group's control, actual results or performance may differ
materially from those expressed or implied by such forward-looking
statements.
Contacts
Seamus Murphy FTI Consulting
Smurfit Kappa Group
Tel: +353 1 202 71 80 Tel: +353 1 663 36 86
E-mail: ir@smurfitkappa.com E-mail: smurfitkappa@fticonsulting.com
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