Investopedia: An Off-The-Board Bidder For Smurfit-Stone

The idea that Smurfit-Stone Container (Nasdaq:SSCC) was not going to stay public for too much longer was not all that controversial. After all, the company was a leading manufacturer of containerboard (#2 in the United States), well positioned relative to virgin fiber resources, and not in possession of a terribly dynamic restructuring-oriented management. Consequently, it would not have been surprising to see a company like Temple-Inland (NYSE:TIN) or Koch Industries' Georgia-Pacific step in and acquire Smurfit to better compete with International Paper (NYSE:IP). 

Well, Rock-Tenn (NYSE:RKT) had other ideas. In what is virtually a merger of equals, Rock-Tenn came in with a cash and stock bid for Smurfit-Stone that creates a rather interesting new company in the space and would seem to offer a compelling match of strengths.

The Deal
Rock-Tenn hopes to acquire Smurfit-Stone in a $3.5 billion bid composed of $17.50 in cash and 0.30605 shares of Rock-Tenn for each share of Smurfit-Stone. That gives Smurfit shareholders a 27% premium to Friday's price. At a bit more than 6 times trailing EBTIDA (annualizing Smurfit's last quarter), the deal premium is lower than what IP paid three years ago for Weyerhauser's (NYSE:WY) containerboard assets, but does not seem radically out of line with typical industry valuations (Rock-Tenn itself trades at 6.4x trailing EBITDA).


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Packaging Getting Boxed In

Investors certainly brought out the box cutters on Monday, taking down the stocks of most of the significant corrugated packaging companies. While the S&P 500 and other market indexes started off the week with better than 1% gains, packaging companies saw their stocks drop on average around 5% amidst higher volume. While the largest packaging company, International Paper (NYSE:IP), suffered the worst with a 6.4% drop, number two player Smurfit-Stone (Nasdaq:SSCC) got off relatively lightly with a nearly 3% decline.  

No Mystery As to Why
The reason for the drop was pretty straightforward. An industry journal, Pulp and Paper Week, reported that a price hike implemented by the industry in August has not held up, and prices have settled back to the former level. Not only will that pricing adjustment trigger some customer rebates, it also will take a meaningful chunk of out the sector's forward earnings prospects, as these companies are presently profitable and a fair bit of that price hike should have flowed to the bottom lines. 


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http://stocks.investopedia.com/stock-analysis/2010/Packaging-Getting-Boxed-In-IP-SSCC-PKG-TIN-WY-FOR0923.aspx