PCA to acquire Greif’s containerboard business in $1.8B deal

Packaging Corp. of America (PCA) has agreed to acquire the containerboard business of Delaware, Ohio-based packaging company Greif Inc. in a deal worth $1.8 billion.

The transaction is expected to close by the end of PCA’s third quarter this year, and Greif officials say the move is “fully aligned” with its “Build to Last” strategy.

“The sale of our containerboard business … unlocks immediate value for our shareholders,” Greif President and CEO Ole Rosgaard says. “It represents a pivotal step in our work to sharpen our portfolio, enhance our capital efficiency and advance our growth priorities.

“Once finalized, our remaining material solutions all contain leadership positions to drive margin expansion and cash flow generation.”

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Greif’s containerboard business includes two mills, one in Gladstone, Virginia, and another in Massillon, Ohio, both of which produce recycled packaging and have a combined production capacity of about 800,000 tons annually.

The business also includes eight sheet feeder and corrugated facilities across the U.S.

According to Greif’s latest earnings report, its containerboard business generated approximately $1.2 billion in sales and $212 million in earnings before interest, taxes, depreciation and amortization for the 12 months ending April 30.

“The mills nicely complement PCA’s system and will provide containerboard to support PCA’s continued corrugated products growth,” PCA CEO Mark Kowlzan says. “We expect to achieve significant synergies with minimal capital investment through our operational expertise and will identify even more opportunities within the combined system for future high return investments to grow with our corrugated and sheet feeder customers.”

PCA operates eight mills and 86 corrugated products facilities and related sites across North America, and a Reuters report says this latest deal boosts the Lake Forest, Illinois-based company’s containerboard capacity to approximately 6 million tons annually.

For Greif, the company expects the move to further position it as “a packaging leader,” allow it to deliver more durable earnings, enhance capital utilization and reduce recurring capital needs and enable debt reduction. Cash proceeds will be allocated to debt repayment.

Meanwhile, PCA is expected to finance the transaction with $1.5 billion of new debt and cash on hand.

PCA also says synergies are estimated to generate pretax benefits of approximately $60 million and are expected to be fully realized within two years after closing. The synergies are projected to come from improved operational and production capabilities and efficiencies at the mills, increased integration, mill grade optimization and lower transportation costs. Approximately half the benefits are expected by the end of the first year with the remainder expected by the end of the second year.

“We have a great deal of respect for Greif and are very pleased to have reached agreement to acquire this business,” PCA President Tom Hassfurther says.

“Greif’s people have developed deep and lasting relationships with their customers, who we look forward to serving with Greif’s well capitalized facilities. It is a very strong cultural fit with us in terms of safety, innovation, growth and dedication to serving the needs of customers. We will apply the sales, customer service and operational expertise of the combined organization to even better serve our corrugated and sheet feeder customers and achieve additional growth and profitability.”