Packaging group Jefferson Smurfit's US associate, Smurfit Stone Container Group, has made a major acquisition in America in a deal worth $1.4 billion.
The US group has bought St Laurent Paperboard for $625 million in cash and has issued 25 million new shares to the St Laurent shareholders. It is also taking on St Laurent's $386 million of debt.
St Laurent has a number of paperboard operations including four container-board mills and 16 packaging plants mainly in the US and Canada. It is seen as a leader in high-quality board used for graphic displays in supermarkets at the point of sale.
Smurfit-Stone's president and chief executive, Mr Ray Curran, said the deal would have multiple benefits for investors and it was expected to be revenue-enhancing.
"It will expand our capabilities to serve the fast-growing market for high-impact graphics packaging and it represents and excellent business and geographic fit."
He said combining the operations would generate around $50 million in cost-savings per year. In addition, he said, by joining Smurfit-Stone's container board system with St Laurent capabilities, they would create significant new opportunities to optimise container-board manufacturing costs.
Jefferson Smurfit's chief financial officer, Mr Gary McGann, said last night that Smurfit-Stone's debt would be just over $8 billion, once it raised the monies to finance the deal. He said the company was comfortable with this level of debt. "We are confident that the companies will have the cash flows to pay it down over the next couple of years.
Mr McGann said the companies would dovetail very well, both geographically and in terms of synergies. "They [Smurfit-Stone and St Laurent] are both well-managed businesses, which are very strong in their own particular areas."
He said St Laurent had sales of around $1 billion last year. "By and large it is a very tightly-run ship, but we are confident we can make cost savings."
On liner-board prices, Mr McGann said inventory levels were slightly higher than expected at the end of January, but companies such as Smurfit were taking immediate action to ensure that they didn't build up stock. He added that price increases were going through in February and March as planned.
Following the deal - which is expected to close in the second quarter - Jefferson Smurfit Group will see its stake in Smurfit-Stone diluted from 33 per cent to 29.5 per cent, but will still be the biggest single shareholder. The company said last night that it reserved the right to amend its offer.
