WestRock (WRK) To Buy Assets From 2 Corrugated Box Producers
Zacks Investment Research | Jun 22, 2017 08:43AM ET
In a bid to tap the growing demand for corrugated packaging, WestRock Company (NYSE:WRK) is buying the assets of Island Container Corp. and Combined Container Industries LLC – two independent producers of corrugated boxes, sheets and point-of-purchase displays. Through these buyouts, WestRock will add more than 80,000 tons of containerboard into its corrugated packaging business.
Both the companies cater to customers in cosmetic, pharmaceutical and food markets in the northeastern U.S. The assets to be acquired include a corrugator machine that makes corrugated boxes from paperboard and the corrugated converting operations located in Wheatley Heights, NY, and certain related fulfillment assets located in Saddle Brook, NJ. The consideration represents an EBITDA multiple of less than 4.5 times on a post-synergy basis. WestRock will pay the total consideration in cash.
The company has been active on the acquisition front lately. Earlier this month, WestRock purchased five corrugated converting facilities in Ohio, Pennsylvania, and Louisiana, from U.S. Corrugated, a large independent manufacturer of corrugated products for packaging and displays. Notably, WestRock anticipates realizing significant synergies from supply chain optimization, better procurement and integrating approximately 105,000 tons of the containerboard converted annually by the acquired facilities. It will also secure another 50,000 tons under a long-term contract with a newly created company, formed from the remaining assets of U.S. Corrugated.
These acquisitions will enhance the performance of WestRock’s Corrugated Packaging segment. The segment contributed 57% of total sales in second-quarter fiscal 2017. Further, these buyouts will enable WestRock to capitalize on the growing global corrugated packaging market that has witnessed a stellar rise in the past years and is expected to trend upward. Growth in food & beverages, personal care, pharmaceuticals & healthcare, paper industry, electronic goods have played a major role in the overall market growth. Corrugated Packaging is currently the preferred packaging for small, medium and large-sized products which in turn has increased the demand globally. Growing e-commerce industry has triggered the demand in the corrugated packaging market. Further, given that corrugated packaging is a safer choice than plastic packaging has also led to the rising demand of corrugated packaging market.
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