A deal, which was established in 2015 between US packaging company WestRock Co (NYSE:WRK) and KapStone Paper and Packaging Corp. (NYSE:KS) has been sealed. At a cost of about $3.5 billion, the two have agreed to work together to boost the growing demand for packaging products in a growing U.S. economy. While this is likely to be the biggest deal for WestRock this far, it is expected to heighten the company’s savings to a tune of $200 million by the end of fiscal 2021.
What does the duo have to gain from each other?
The two companies will meet each other halfway once the deal is endorsed. The transaction may not be conditional on financing but KapStone shareholders have the option of receiving $35.00 per share in cash or receiving 0.4981 WestRock shares per KapStone share. KapStone would also become part of WestRock’s current 27 mills.
On the other hand, the deal is expected to adjust WestRock’s earnings and cash flow. Above all, the acquisition of the small company would give more power to WestRock and particularly on the West Coast. All said and done, the combined company would make close to $20 billion in annual sales.
Steven Chercover, D.A. Davidson & Co analyst says, “This is one of the last opportunities to consolidate in an industry that’s already becoming very well-structured.”
Tapping into the kraft bag market as plastic is banned
The deal comes at a time when the plastic is being banned in most parts of the Western world. Thus it introduces an opportunity to WestRock to expand its packaging solutions in the western United States. Corrugated packing business is very common in the industrial and consumer end-markets. It is worth noting that KapStone has facilities in the US, Canada, and Mexico, hence it will be an incredible fit with WestRock, which already has 45,000 employees.
Apparently, WestRock was created as a result of a merger between Richmond-based MeadWestvaco Corp. and Georgia-based Rock-Tenn Co. The company’s CEO Steve Voorhees believes that it has what it takes to serve a diverse range of customers across the region. Furthermore, it is the second-biggest packaging company in the US after International Paper Co.