Shares of KapStone Paper and Packaging (KS 34.42, +7.88 +29.7%) approach all-time highs on Monday after news crossed in the premarket that peer WestRock (WRK 68.07, -2.20 -3.1%) would purchase all outstanding shares of KS for $35.00 per share and assume about $1.36 billion in net debt.
In all, WRK’s buyout values KS at about $4.9 billion. Based on KS’s annualized EBITDA performance in the second half of its fiscal 2017, WRK estimates the EV/EBITDA multiples to be under 10 times before and 7 times after the full run rate of expected cost synergies and performance improvements.
Per the agreement, KS stockholders will have the option to receive $35.00 per share in cash, or to elect to receive 0.4981 WRK shares per KS share, with elections of stock consideration capped at 25% of the outstanding KS shares but no limit on the number of KS shares that can receive cash consideration.
Additionally, KS’s chairman, Roger Stone, and president and chief executive officer, Matt Kaplan, have entered into voting agreements, pursuant to which they have agreed to vote their shares in support of the transaction, subject to certain limitations.
The deal is attractive to WRK as it should create about $200 million in cost synergies and performance improvements across its corrugated packaging system. The cost synergies are anticipated to generate an annual run-rate of about $200 million by the end of fiscal 2021.
Further, WRK (primarily an east coast company) highlights the opportunity of adding KS’s West Coast operations to its umbrella. With packaging facilities across Idaho, Utah and Washington state, the addition of KS better allows WRK to serve customers in the area.
Upon closing, the acquisition is expected to be immediately accretive to WRK’s adjusted earnings and cash flow, inclusive of purchase accounting adjustments. Further, the transaction is not conditional on financing.
Recall that WRK has been busy these past few months; the company acquired substantially all of the assets of Pennsylvania-based corrugated packaging company Plymouth Packaging for an undisclosed amount back on January 8, completing the deal which was announced Dec. 12, 2017. Also, a few months ago, WRK bought Australian-based Hanna Group Pty Ltd (Hannapak) for AUD$75 million in cash.
Notwithstanding today’s move, shares of WRK are up about 30.7% during the past 52-weeks.