Investopedia: Rock-Tenn Still Rolling

Packaging is typically a difficult business. After all, most things that need a package already have them, and customers are always pushing for new designs that eliminate materials and cut costs. What's more, it's a business that relies on difficult-to-control commodity inputs like natural gas, wood and wastepaper, and plenty of companies have wrecked industry pricing in the past by gorging on debt-fueled capacity only to cut prices to keep those factories running.

Against that depressing backdrop, Rock-Tenn (NYSE:RKT) stands out as a different sort of company. Rock-Tenn has often been an unusually efficient operator, and a leader in niches, like in-store displays. Now, with the large Smurfit-Stone acquisition, Rock-Tenn management has the opportunity to leverage their skills over a much larger business, and drive larger returns for shareholders.

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Investopedia: International Paper Wraps Up Temple-Inland

As is so often the case, once again an acquisition target's howls of protest have been soothed by a modest increase in the price of the deal. On Tuesday morning, International Paper (NYSE:IP) announced that it has reached an agreement with Temple-Inland (NYSE:TIN) on a friendly acquisition with a slightly higher price than IP's original bid.

A Small Bump To "Yes"  
International Paper secured the support of Temple-Inland's board by offering $32 a share in cash and the assumption of $600 million in debt - a total deal value of $4.3 billion. At that price, Temple-Inland shareholders are seeing a roughly 30% premium to Friday's close and a trailing EV/EBTIDA valuation of roughly 10 - a slight discount to Rock-Tenn (NYSE:RKT), but a premium to Packaging Corp (NYSE:PKG) and the larger packaging sector.


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Investopedia: International Paper Makes A Grab For Temple-Inland

Not long after Rock-Tenn (NYSE:RKT) finished its deal for Smurft-Stone, International Paper (NYSE:IP) has decided to make its own play for further consolidation in the packaging business. Late Monday, IP announced that it had launched a hostile offer for Temple-Inland (NYSE:TIN), but Temple-Inland quickly shot down the offer and implemented a poison pill. What remains to be seen now is whether IP can raise the stakes high enough to either persuade the board to change its mind or compel Temple-Inland's own shareholders to rise up and demand approval of the deal. 


The Deal
IP surprised the market with a $30.60 cash bid for Temple-Inland, a price about 46% above the company's prior value. If the deal happens, IP would pick up Temple-Inland's 4 million tons of containerboard capacity, over 2 billion square feet in gypsum wallboard capacity, and significant capacity in other building products like lumber and particleboard. Not only would the deal make the combined company a force in containerboard (with about 39% share) with all the attendant synergies of scale, but it would move IP further into the building products sector. For more, see Smurfit Stone Emerges From The Dead.)

Doth Temple-Inland Protest Too Much?
Poring over the "he said, he said" of the dueling press releases, it seems pretty clear that IP approached Temple-Inland and that Temple-Inland turned them down cold (a unanimous board vote against the $30.60 deal). Of course, as is part and parcel of such rejections, Temple-Inland loaded its response with mock indignation that IP would dare offer such a low price, called the deal opportunistic, complained that IP's comparables are unfair and so on. In other words, standard boilerplate language for a rejection. 



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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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