Tuesday, 30 January 2018 17:05

Documents: 'Business as usual' in wake of merger announcement

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While the question of how the Roanoke Rapids KapStone paper mill will fit into the proposed acquisition of the entire Illinois-based company by Georgia-based WestRock is not clear, documents filed with the United States Securities and Exchange Commission do shed some light on how the two companies view the merger.

John Pensec, corporate communications director for WestRock, could not immediately answer questions today on what the proposed acquisition of KapStone would mean for the Roanoke Rapids mill. “It’s business as usual. It’s just the beginning of the process of what the plans will be in terms of specific plans and specific locations. We think it’s an exciting opportunity.”

Halifax County Board of Commissioners Chairman Vernon Bryant said it is his understanding, “The operations should be the same and possibly enhanced. The county has reached out to local KapStone officials who have indicated the acquisition by WestRock is not expected to adversely impact operations in Roanoke Rapids and operations should remain the same.”

Documents filed with the SEC also indicate a business as usual approach at KapStone.

The documents include corporate-wide memos sent out by KapStone and transcripts of a conference call Monday discussing not only WestRock’s quarterly report but the plans to purchase Kapstone.

 

Conference call

During the investor conference call WestRock CEO Steven C. Voorhees said, “I'm pleased to be able to announce that we signed a definitive agreement to acquire KapStone Paper and Packaging.

“Before I get too far, I want to express my admiration for Roger Stone, Matt Kaplan and the entire KapStone team for what they've built since 2005. It's an incredible story. I've been able to spend more time than ever with Roger and Matt over the past few months and it's only increased my regards of them as people and as businessmen. They're truly focused on the customers and their (employees), which delivered outstanding returns for investors.”

Voorhees noted, “KapStone is an outstanding fit with our business. The corrugated packaging operations will enhance WestRock's North American corrugated packaging business and provide complementary products and geographical locations that will enable us to better serve customers across our system.”

He said the addition of specialty paper products to WestRock's portfolio “further expands our comprehensive range of differentiated products into heavyweight kraft rates that we currently do not produce. With the transaction, (we've) also acquired Victory Packaging, the packaging solutions distribution company with more than 60 facilities in the United States, Canada and Mexico. Victory provides opportunities for WestRock to integrate our system further downstream to an expanded set of customers.”

Voorhees said, “I'm looking forward to welcoming KapStone employees to WestRock to provide them opportunities to sustain and advance their careers and I'm looking forward with working with them to help make WestRock an even more successful company.”

He told the investors, “We have a track record of successfully generating efficiency and productivity that increase performance and create value. The acquisition of KapStone is no exception as we expect approximately $200 million in synergy and performance improvements. Over half of which we think will be achieved within a year of closing.”

The proposed acquisition will add four mills to complement WestRock’s current geographic footprint. “The addition of these mills will provide opportunities to further optimize our mill production and reduce both logistics and variable operating costs. The (Washington) Longview mill gives us great logistical advantages with its strategic Northwest presence, while the other mills integrate well into our existing system.”

KapStone Q&A

In a question and answer document contained in the SEC files KapStone explained, “We have entered into a definitive agreement for KapStone to be acquired by WestRock. We expect the transaction to close during the quarter ending September 30, 2018, subject to customary closing conditions and approval by KapStone’s shareholders.”

The memo explains WestRock is a leading provider of differentiated paper and packaging solutions, based in Atlanta, with a vision of being the premier partner and unrivaled provider of winning solutions to their customers.

WestRock had approximately $15 billion in revenue in fiscal 2017. Its 45,000 team members serve their customers from more than 300 operating and business locations spanning North America, South America, Europe, Asia and Australia.

KapStone explained WestRock has the following market leadership positions:

North American consumer paperboard — 1

North American folding carton — 2

North American merchandising displays — 1

Beverage multi-packaging —  2

North American containerboard — 2

North American corrugated packaging — 2

Brazil corrugated packaging — 2

“WestRock was formed in 2015 with the merger of RockTenn and MeadWestvaco,” the Q&A said. “Like KapStone, WestRock has grown through acquisition. In 2017, WestRock acquired Multi Packaging Solutions, as well as four acquisitions of packaging businesses that improved their North American corrugated packaging footprint.”

Explaining why KapStone agreed to the deal, the Q&A said, “After careful consideration, KapStone’s board determined that this transaction was in the best interests of KapStone stockholders. In addition to providing compelling value to stockholders, becoming part of a larger and more diversified market leader like WestRock will bring even greater value and service to our customers and create enhanced growth and opportunities for employees.”

The strategic rationale, the memo said is, “This is an exciting opportunity for both companies and one that we believe will create significant value for our stockholders and customers and enhance our capabilities to partner with them and provide the right solutions to achieve their business objectives.

“Becoming part of WestRock will provide KapStone’s customers with a deeper, more comprehensive product portfolio and access to a broader, national network of facilities. For WestRock, the transaction significantly enhances their scale and scope in the market, particularly in the Western U.S., and the assumption of our specialty kraft paper products will enhance their portfolio.”

 

General questions in the memo

Will there be any layoffs as a result of the transaction?

Answer: Until closing, the two companies will operate independently; it is business as usual.

This transaction is primarily about accelerating growth and positioning the company for continued success.

Over the long term, we believe employees should have increased career opportunities as part of a larger and more diversified global company.

 

Will my benefits or pay change?

Answer: Until closing, the two companies will operate independently as we do today. It is business as usual. There will be no changes to pay or benefits in the immediate future.

 

Will merit increases occur as scheduled?

Answer: Yes, merit increases will occur as normally scheduled.

 

Does today’s announcement affect any management incentive plan payouts for our performance in 2017?

Answer:  No. MIP payouts will occur as originally scheduled, based on our results for 2017.

Will KapStone still make an RSA contribution to 401(k) Plan accounts for the 2017 plan year?

Answer: Yes. RSA contributions will be deposited into eligible participant accounts during the week of January 29.

 

Will the acquisition affect union contracts at KapStone facilities?

Answer: No. Existing contracts will remain in effect.

 

How will our companies fit together?

Answer: Our companies are a strong fit. KapStone and WestRock share a common culture of focusing on being a long-term, trusted partner with customers and a commitment to providing innovative, differentiated packaging solutions.

WestRock’s business philosophy is rooted in many of the values and principles that have guided KapStone.

Like KapStone, WestRock is focused on operational excellence, quality integrity, safety, sustainability and superior customer service.

WestRock is also committed to developing their people and ensuring they have the tools and training to contribute to the success of the business and to grow personally and professionally.

For the past three consecutive years, WestRock has been named to FORTUNE magazine’s annual list of the World’s Most Admired Companies based on its achievements across a variety of areas including investment value, quality of management and products, social responsibility and the ability to attract and develop talent.

Who will lead the combined company? Will anyone from the KapStone leadership team be joining WestRock?

Answer: Steve Voorhees is Chief Executive Officer of WestRock, and Jeff Chalovich is President of its Corrugated Packaging business.  Since the transaction has not closed, it is too early to provide any additional details.

 

KapStone intra-company correspondence

On Monday, Stone and Kaplan sent out correspondence to all KapStone employees announcing the proposed acquisition, labeling it in the subject line as “Important KapStone Announcement.”

The correspondence begins saying, “We are pleased to announce today that we have entered into a definitive agreement for KapStone to be acquired by WestRock. This is an exciting development for both of our companies. By joining forces, we will create one of the largest providers of innovative paper and packaging solutions to customers around the world.

“More than 10 years ago, we began a journey to build a world-class paper and packaging company with the resources and skills of our largest competitors — but that also treated our customers and employees like a small, family-oriented company. We have pursued this dream together, and we should all be proud of what we have accomplished together in making KapStone the company it is today.”

The document says WestRock’s interest in acquiring KapStone is a testament to the strength of the company “we have built and our impressive track record of delivering value for our stockholders and customers. From our perspective, we believe that becoming part of WestRock is the next logical step for KapStone. It’s in the best interest of our stockholders and customers, and we are confident it will provide even greater opportunities for employees to grow in their careers.”

 

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