The acquisition will create a $9bn a year company with a total production capacity of seven million tons. That makes a combined company that is the second biggest North American containerboard producer and the number two global supplier of coated recycled board.
Under the terms of the deal, RockTenn is offering 50 per cent cash and 50 per cent stock for the larger Smurfit. Once the transaction is completed, RockTenn shareholders will own 56 per cent of the combined company and Smurfit shareholders will own the remaining 44 per cent.
In addition to the equity consideration, RockTenn has agreed to assume Smurfit’s net debt and pension liabilities, which add up to $1.8bn.
Smurfit has reduced its debt burden by almost $3bn over the last couple of years as the company fought its way out of bankruptcy.
Return from bankruptcy
It finally emerged from Chapter 11 bankruptcy in June last year after 17 months of proceedings that returned the company to profitability.
The company had initially run into difficulties at the end of 2008 when demand plummeted as a result of the financial crisis.
After filing for bankruptcy, Smurfit began to restructure its operations, cutting jobs and closing facilities, including a mill in Missoula employing 417 people, in an effort to reduce its debt and solve over-capacity problems.
In fourth quarter results published yesterday, Smurfit announced adjusted net income of $62m, compared to an adjusted net loss of $16m in the equivalent period last year.
RockTenn will be banking that the economy continues to improve, resulting in higher demand for food and consumer goods shipped in cardboard containers.
The transaction, which is subject to approval from shareholders and regulators, is expected to close in the second quarter of 2011.