Graphic Packaging and Altivity Merge
MARIETTA, Ga., and CHICAGO—Graphic Packaging Corporation and the owners of Altivity Packaging, LLC announced that they have signed a definitive agreement to combine the two companies. The new company will be called Graphic Packaging Holding Company and will trade under the NYSE ticker symbol “GPK”.
The new company has significantly expanded product offerings, market reach, and technology capabilities and expects to have 47 folding carton facilities, 12 multi-wall & specialty bag facilities, 10 paperboard mills, 6 flexible packaging facilities, 5 ink manufacturing facilities, 3 label facilities and 3 packaging machinery manufacturing facilities worldwide. The combined management team has a strong track record of achieving performance improvement objectives and of successfully integrating businesses.
The management teams of Graphic Packaging and Altivity Packaging have identified potential annual gross merger synergies of over $90 million from the combination of Altivity Packaging and Graphic Packaging, which are expected to be fully realized by 2011, with approximately 2/3rds realized by 2009.
Altivity Packaging management expects to achieve 2007 EBITDA in excess of $200 million excluding one-time costs to achieve cost savings and other one-time expenses. In addition to the $90 million of merger synergies resulting from the Graphic Packaging and Altivity Packaging combination, Altivity Packaging management forecasts stand-alone cost reductions of approximately $50 million in 2007 and an additional $45 million in annual cost savings to be fully achieved by 2009.
The transaction is expected to be accretive to Graphic Packaging’s earnings per share and free cash flow (defined as cash provided by operating activities less capital spending) by 2008, prior to one-time costs of achieving synergies.
The transaction is expected to be completed in the fourth quarter of 2007, subject to customary shareholder and regulatory approvals. The transaction has been approved by the Boards of Directors of both companies. Affiliates of TPG Capital, who control and own the majority of Altivity Packaging, have agreed to the transaction, and Graphic Packaging’s three largest shareholders, who on a combined basis control more than 60 percent of Graphic Packaging’s outstanding common stock, have agreed to vote in favor of the merger.
The merger is expected to create significant stockholder value by expediting growth opportunities, achieving significant cost savings and enhancing the credit profile of the newly-formed company through accelerated debt reduction.
Graphic Packaging’s President and Chief Executive Officer David W. Scheible will serve as the president, chief executive officer, and member of the board of directors of the new company, while George Bayly, Altivity Packaging’s chairman and interim chief executive officer, will also join the new company’s board of directors. The new company’s board will be comprised of a majority of independent directors, and will be chaired by Graphic Packaging’s current non-executive Chairman John R. Miller. The new company will be based in Marietta, Ga., and will retain a significant presence in Chicago, Ill., where Altivity Packaging is currently headquartered.
“Our two companies share similar operating philosophies, including an unwavering commitment to serving our customers with innovative products and solutions,” said David W. Scheible, Graphic Packaging’s president and chief executive officer. “Our focus on continuous improvement will greatly enhance our integration activities, help us achieve our cost savings and merger synergy targets and drive superior results. The new company will benefit from strong positions in multiple packaging sectors including paperboard, folding carton, multi-wall & specialty bags, flexible packaging and labels, positioning us to provide our customers greater choice, better service, higher quality and more innovative solutions for all of their packaging needs. Furthermore, this merger will expand the breadth and diversity of our combined customer bases, improve our service to key national accounts, and improve access to the regional and specialty customer segments.”
“This merger brings together two companies that are highly respected leaders in the packaging industry,” said George Bayly, Altivity Packaging’s chairman and interim chief executive officer. “Together, the new company will serve a more diversified customer base and achieve economies of scale and operating efficiencies that would be more difficult to achieve on a stand-alone basis. Under David’s leadership, I am confident in our collective ability to achieve our original cost savings and growth objectives, to realize substantial merger synergies, and to better serve our customers and employees who represent the future of our new company.”
The merger of Graphic Packaging and Altivity Packaging brings together 86 manufacturing and converting facilities and approximately 15,600 people on five continents, enabling the combined company to better serve customers and reduce costs. Graphic Packaging has 23 folding carton facilities, four mills, two packaging machinery manufacturing facilities, and 1 flexible packaging facility. Altivity Packaging has 24 folding carton facilities, 12 multi-wall & specialty bag facilities, six mills, five flexible packaging facilities, five ink facilities, three label facilities and one packaging machinery equipment facility.
As a result of the transaction, the new company projects it will achieve annual gross merger synergies of over $90 million expected to be fully realized by 2011, with approximately two-thirds realized by 2009. Although restructuring charges are anticipated to result from the integration, the new company is expected to generate cash flow from synergies in excess of the cash payments used for restructuring charges in each year. Such synergies are expected to be achieved through operating expense reductions, supply chain procurement changes, mill optimization efforts and manufacturing process improvements.
Altivity Packaging management expects to achieve 2007 EBITDA in excess of $200 million excluding one-time costs to achieve cost savings and other one-time expenses of an estimated $35 million. Altivity Packaging management forecasts stand-alone cost reductions of approximately $50 million in 2007 and an additional $45 million in annual cost savings to be fully achieved by 2009. Altivity Packaging’s stand-alone savings will result from manufacturing network optimization efforts, overhead reduction and supply-chain improvements and are separate from the gross merger synergies of over $90 million expected to be derived from the combination of Graphic Packaging and Altivity Packaging.
Daniel J. Blount, senior vice president and chief financial officer of Graphic Packaging, said, “We expect the combined companies to generate substantial cash flow to accelerate debt reduction, improve leverage ratios, finance ongoing investment and fund growth initiatives. The transaction is anticipated to be accretive to earnings per share and free cash flow by 2008. Both companies have proven track records in merger integration, cost reduction and synergy attainment, and demonstrated ongoing productivity and quality programs. This transaction presents an attractive opportunity on all fronts.”
AdvisorsGoldman, Sachs & Co. acted as financial adviser and Alston & Bird LLP acted as legal counsel to Graphic Packaging, and Banc of America Securities LLC acted as financial adviser and Simpson Thacher & Bartlett LLP acted as legal counsel to Altivity Packaging.
