Rivals Mead and Westvaco to Merge
Rival forest products companies Mead Corp. and Westvaco Corp. said Wednesday that they plan to merge in a $3-billion stock swap, creating the fourth-largest paper producer in North America.
Shares of both companies jumped on the news, with Westvaco’s stock rallying nearly 10% to levels unseen since May 2000. Mead shares rose about 9% to an eight-month high.
The new MeadWestvaco Corp. is expected to benefit earnings on a pro forma basis by $1.01 a share and generate $325 million in cost savings by the end of the second year, in part through an undetermined number of job reductions.
The company would become North America’s No. 2 producer of coated papers, with a quarter of the coated free-sheet market and a 10% share in lightweight coated ground wood, used in magazine publishing. Forestry giant International Paper Co. is the largest producer of coated papers.
Analysts said the deal is good for the paper industry, which has been struggling with soft demand, high inventories and low prices, and is in need of additional consolidation.
“They were both possible acquisition targets, and they were one of the few remaining large paper companies out there that hadn’t merged,” Stephen Keane, managing director of Milwaukee-based Robert Baird & Co., told Reuters. “It’s a good fit.”
Recent big deals in the paper industry include International Paper’s purchase of Champion International, Finnish-Swedish Stora Enso’s acquisition of Consolidated Papers and Finnish papermaker UPM-Kymmene’s purchase of four mills from German magazine paper maker Haindl.
Mead shareholders would own 50.2% of the combined company, with Westvaco shareholders holding 49.8%.
Jerome Tatar, Mead’s chairman and chief executive, would serve as chairman of the new company, and Westvaco Chairman and CEO John Luke would be CEO and president. Karen Osar, chief financial officer of Westvaco, would be the firm’s CFO.
The combined entity, with more than 32,000 employees, would be headquartered in Stamford, Conn., where Westvaco is based. The coated papers and consumer and office products businesses would remain in Dayton, Ohio, where Mead is headquartered.
Mead stockholders would receive one share of the new company for each of their shares, plus a special payment of $1.20 a share upon completion of the deal, which is expected in the fourth quarter. Westvaco shareholders would get 0.97 share of the new company for each of their shares.
The company would generate more than $8 billion in revenue, with four core operations: packaging, coated and specialty papers, consumer and office products, and specialty chemicals.
In New York Stock Exchange trading, Mead shares rose $1.99 to close at $32.17, and Westvaco jumped $2.09 to close at $29.75.
