MeadWestvaco, the US packaging, paper and office products producer, has announced it has reached a definitive agreement to sell its papers business and associated assets for $2.3 billion to a new company controlled by Cerberus Capital Management L.P., a buyout firm based in New York.
MeadWestvaco expects the transaction to result in after-tax net proceeds of approximately $2.1 billion at closing, which it will use to improve its overall capital structure. The company expects to use approximately $900 million to $1.1 billion of the proceeds to pay down debt and between $500 million and $700 million to return value to shareholders through stock repurchases. At the completion of the capital restructuring, the company expects its debt to capital ratio to be 40% or better. The remaining cash will be available either for strategic growth opportunities or to further pay down debt and return value to shareholders.
John Luke, chairman and CEO of MeadWestvaco, said the deal would enable the company to concentrate more of its resources on capturing growth opportunities in the global packaging markets.
?This sale monetizes the value of our efforts to create the leading coated papers franchise in north America,? he said. ?Over the last several years, we have reduced costs and gained market share in a challenging economic environment, and this sale creates a new papers business that is well positioned to compete as a stand-alone company.?
After the closing, MeadWestvaco will have more than $6 billion in annual revenues, with about three-quarters coming from the packaging business and about one-third coming from international sources, and approximately 24,000 employees.
The sale is subject to customary closing conditions, including regulatory approvals and purchaser’s financing, and is expected to be completed in the second quarter of 2005.
MeadWestvaco estimates that the transaction will result in a one-time after-tax accounting loss of between $650 and $675 million, the majority of which will be recorded in the fourth quarter of 2004. In addition, the papers business operating results will be reported as discontinued operations in MeadWestvaco’s consolidated financial statements beginning in the first quarter of 2005. The papers business has approximately $2.3 billion in annual sales.
Goldman, Sachs & Co. and UBS Investment Bank are acting as financial advisors to MeadWestvaco. Greenhill & Co. LLC provided the board of directors of MeadWestvaco with a fairness opinion. MeadWestvaco was represented by the law firm of Wachtell, Lipton, Rosen & Katz.
