Rock-Tenn Company and MeadWestvaco Corporation have entered into a definitive agreement to create a global provider of consumer and corrugated packaging. The transaction has a combined equity value of $16 billion with combined net sales of $15.7 billion and adjusted EBITDA of $2.9 billion, including the impact of $300 million in estimated annual synergies to be achieved over three years. A new name for the company will be selected prior to closing.
Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, MWV stockholders will receive 0.78 shares of the new company for each share of MWV held. RockTenn shareholders will be entitled to elect to receive either (a) 1.00 shares of the new company or (b) cash in an amount equal to the volume weighted average price of RockTenn common stock during a five-day period ending three trading days prior to closing for each share of RockTenn held.
The cash and stock elections by RockTenn shareholders will be subject to proration so that the resulting ownership of the new company will be approximately 50.1% by MWV shareholders and 49.9% by RockTenn shareholders, and based on the shares outstanding of the date of the announced merger, approximately 7% of RockTenn shares will receive cash in lieu of stock. This targeted ownership ratio of the new company will facilitate the continued favourable tax attributes of spin-off of MWV’s specialty chemicals business, which the parties intend to complete after the closing of the business combination.
“This transaction brings together two highly complementary organizations to create a new, more powerful company with leadership positions in the global consumer and corrugated packaging markets. This is a terrific opportunity for shareholders, employees and customers of both companies, all of whom stand to benefit enormously from the combination. Importantly, our two companies are also an exceptional cultural fit, sharing a commitment to exceeding customer expectations and a focus on developing innovative packaging solutions,” said Steven Voorhees, chief executive officer.
Voorhees added that planning for the integration of the two companies already started and they expect to expeditiously realize the full value of the cost synergies they identified.
Voorhees will serve as chief executive officer and president of the combined company, while John Luke, chairman and chief executive officer of MWV, will become non-executive chairman of the board of directors. The board will be comprised of eight directors from RockTenn and six directors from MWV. Other key executives and their positions will be determined according to their strengths and will be named prior to closing. The combined company will maintain its principal executive offices in Richmond, Va., and will have operating offices in Norcross, Ga.
“We are creating the leading global provider of consumer and corrugated packaging solutions—and generating significant value for both companies’ shareholders,” stated Luke. “This transaction is a logical step that is borne of our strategic progress and financial success, and it offers MWV shareholders both immediate value and the opportunity to participate in significant upside as the new company generates substantial growth from its market-focused global strategy.”
The transaction requires the approval of shareholders of both MWV and RockTenn and is subject to receipt of certain regulatory approvals and other customary closing conditions. Both parties target closing the transaction in the second calendar quarter of this year.