KapStone Signs Agreement to Acquire Recycled Board Mill

KapStone Paper and Packaging Corp., headquartered in Northbrook. Ill., has signed an agreement to acquire U.S. Corrugated Inc. (USC) for $330 million in cash and subject to certain post-closing adjustments. Closing of the acquisition is subject to a number of customary conditions, including regulatory review and receipt of financing.

USC operates a 240,000-ton-per-year recycled containerboard paper mill in Cowpens, S.C., as well as 20 converting plants. As part of the acquisition arrangement, six of USC’s converting facilities will be sold by the company prior to the closing. The facilities will remain under the management and control of Dennis Mehiel, chairman and majority stockholder of USC.

Roger Stone, Kapstone’s chairman and CEO, says, "Acquiring USC is an outstanding opportunity for numerous reasons. The acquisition immediately adds value for our shareholders by increasing earnings, generating very strong free cash flow and reducing risk."

KapStone Paper and Packaging is a producer of unbleached kraft paper products and linerboard. The company, through its KapStone Kraft Paper Corp. division, owns paper mills in Roanoke Rapids, N.C. and North Charleston, S.C.; a lumber mill in Summerville, S.C.; and five chip mills in South Carolina.

"This acquisition will increase our exposure to the highly desirable containerboard segment. Also, we believe that because USC is a net purchaser of 195,000 tons of containerboard the risk of costly economic downtime will be mitigated throughout the economic cycle,” Stone continues.

"KapStone is well-positioned to integrate USC's operations and anticipates approximately $8 million of Day 1 and first year redundancy expense eliminations,” Stone says. Additionally, operating synergies are expected to result in at least an additional $8 million in profit improvement annually within the first 18 months."

"Strategically, the acquisition of USC transforms KapStone into a much more profitable and stronger company, providing additional momentum for KapStone to continue its record of excellence for increasing value to our shareholders," Stone notes.

The transaction is expected to close in late October 2011.