USC operates a 240,000 ton recycled container board paper mill in Cowpens, SC and 20 converting facilities in the eastern and mid-western United States. Six of such operating facilities will be disposed of by USC prior to the closing. Those facilities will remain under the management and control of Dennis Mehiel, Chairman of the Board and current majority stockholder of U.S. Corrugated. USC has been successful in creating strong, long-term customer relationships resulting from outstanding service, quality and innovation. In 2010, the operations to be acquired from USC generated $423 million in net sales.
Chairman and Chief Executive Officer, Roger W. Stone, stated, “Acquiring USC is an outstanding opportunity for numerous reasons. The acquisition immediately adds value for our shareholders by increasing earnings, generating very strong free cash flow, and reducing risk. The deal is accretive to our bottom-line from Day 1. Our balance sheet, which was very strong going into this transaction, remains very strong after the acquisition maintaining a leverage ratio of debt to EBITDA of less than two times. The combined company is expected to deliver substantial free cash flow in the first year allowing KapStone to quickly de-lever.”
Mr. Stone further commented, “This acquisition will increase our exposure to the highly desirable containerboard segment. Also, we believe that because USC is a net purchaser of 195,000 tons of containerboard that the risk of costly economic downtime will be mitigated throughout the economic cycle.”
“KapStone is well-positioned to integrate USC’s operations and anticipates approximately $8 million of Day 1 and first year redundancy expense eliminations. Additionally, operating synergies are expected to result in at least an additional $8 million in profit improvement annually within the first 18 months.”
Mr. Stone concluded, “Strategically, the acquisition of USC transforms KapStone into a much more profitable and stronger company providing additional momentum for KapStone to continue its record of excellence for increasing value to our shareholders.”
KapStone has committed financing from Bank of America, N.A. and Barclays Capital for a $525 million senior secured credit facility. The new credit facility is expected to consist of a $150 million revolving credit facility and a $375 million term loan maturing over five years. At closing, a portion of the proceeds will be used to pay off KapStone’s existing $101 million term loan.
The transaction is expected to close in late October 2011.
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