uploads/2016/07/pkg-pm.png

Packaging Corporation of America Plans to Acquire TimBar

By

Updated

Price movement

Packaging Corporation of America (PKG) has a market cap of $6.4 billion. It rose by 4.7% to close at $68.48 per share on July 6, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 7.6%, -1.0%, and 10.6%, respectively, on the same day.

PKG is trading 2.4% above its 20-day moving average, 3.4% above its 50-day moving average, and 12.7% above its 200-day moving average.

Article continues below advertisement

Related ETF and peers

The iShares Global Timber & Forestry ETF (WOOD) invests 3.8% of its holdings in PKG. The ETF tracks the 25 largest publicly listed companies that own or manage forests and timberlands. The YTD price movement of WOOD was -5.4% on July 6.

The market caps of PKG’s competitors are as follows:

  • International Paper (IP): $17.4 billion
  • WestRock (WRK): $9.4 billion
  • Domtar (UFS): $2.2 billion

Packaging Corporation’s new acquisition

Packaging Corporation of America (PKG) has entered into a definitive agreement with TimBar Packaging & Display, a large independent corrugated products producer. Under the agreement, PKG will acquire all of TimBar’s assets.

The assets include five corrugated products plants, two fulfillment centers, and four design centers located primarily in the Eastern and Southeastern United States. It will be a cash-free, debt-free transaction for a cash purchase price of $386 million.

Article continues below advertisement

Packaging Corporation said, “As a result of the acquisition, [Packaging Corporation’s] containerboard integration level is expected to increase by over 200,000 tons or 6% from its current level of 87% and will allow for further optimization and enhancement of mill capacity. The value of the increased containerboard integration, the expected synergies and the tax benefit of the step-up of assets, plus TimBar’s LTM EBITDA, results in a purchase price multiple of approximately 4.3 times EBITDA. The acquisition will be accretive to earnings immediately.”

Packaging Corporation’s 1Q16

Packaging Corporation of America reported 1Q16 net sales of $1.40 billion, a decline of 1.7% compared to $1.42 billion in 1Q15. Sales of its packaging and paper segments fell by 0.35% and 5.7%, respectively, in 1Q16 compared to 1Q15.

The company’s cost of sales as a percentage of net sales fell by 2.4%, and its operating income rose by 15.1% in 1Q16 compared to the prior year’s period.

Its net income and EPS (earnings per share) rose to $102.6 million and $1.09, respectively, in 1Q16 compared to $89.6 million and $0.92, respectively, in 1Q15. It reported non-GAAP (generally accepted accounting principles) EBITDA (earnings before interest, tax, depreciation, and amortization) of $269.5 million in 1Q16, an increase of 7.6% compared to 1Q15.

Next, we’ll take a look at Fortune Brands Home & Security.

Advertisement

More From Market Realist