WestRock to acquire rival for $3.4bn

WestRock Co, one of the largest US producers of containerboard, agreed to acquire Kapstone Paper & Packaging Corp for about $3.4bn in what would be the industry’s largest deal in more than two years.KapStone investors will get $35 a share in cash, or they can elect to take 0.4981 of a WestRock share, with the stock consideration of the deal capped at 25% of KapStone’s outstanding shares, the companies said on Monday in a statement. That’s 32% higher than Northbrook, Illinois-based KapStone’s price at the close of trading last week.The deal comes at a bullish time for the corrugated packaging market. Economic expansion is supporting consumer activity, a growing e-commerce sector is boosting the use of boxed goods, and containerboard mills are operating at elevated rates, according to Bloomberg Intelligence analysts Joshua L Zaret and Evan Lee. Shares of containerboard makers jumped on Friday after KeyBanc said that International Paper Co reportedly announced a $50-per-ton price hike effective March 1.Atlanta-based WestRock said the transaction will save about $200mn in costs by the end of its 2021 financial year, widen its range of products and increase the amount of virgin wood fibre used in the company’s offerings. It’s the industry’s largest transaction since WestRock was created by Rock-Tenn Co’s acquisition of MeadWestvaco Corp in 2015.“KapStone is a great fit with WestRock,” Steve Voorhees, chief executive officer at WestRock, said in the statement. “Their complementary corrugated packaging and distribution operations will enhance WestRock’s ability to serve customers across our system, particularly in the western US.”The takeover has an enterprise value of about $4.9bn. WestRock said it will issue new debt to finance the deal. Lazard Ltd was its financial adviser and provided its board of directors with a fairness opinion. Wells Fargo & Co was also a financial adviser and is providing the committed financing for the transaction.Cravath, Swaine & Moore LLP was WestRock’s legal adviser. Rothschild & Co and Moelis & Co were financial advisers to KapStone, and Sidley Austin was its legal adviser.Atlanta-based WestRock said the Kapstone transaction will save about $200mn in costs by the end of its 2021 financial year, widen its range of products and increase the amount of virgin wood fibre used in the company’s offerings.