Graphic Packaging Holding Company to Sell Augusta Paperboard Manufacturing Facility to Clearwater Paper Corporation

Rhea-AI Summary

Graphic Packaging Holding Company (NYSE:GPK) sells its Augusta bleached paperboard manufacturing facility to Clearwater Paper Corporation for approximately $700 million, enhancing Clearwater's position as a premier paperboard supplier in North America.

Market Research Analyst

The sale of the Augusta bleached paperboard manufacturing facility by Graphic Packaging to Clearwater Paper for approximately $700 million represents a strategic realignment within the paper and packaging industry. This transaction, predicated on an Adjusted EBITDA of roughly $100 million, indicates a valuation multiple that is noteworthy. Industry norms suggest that multiples for such assets typically range from 6x to 10x EBITDA, positioning this deal within a reasonable spectrum. However, it is imperative to analyze whether this multiple aligns with current market conditions and comparable transactions.

From a market perspective, the consolidation enhances Clearwater Paper's capabilities and market reach as an independent supplier, potentially increasing its competitive edge against other industry players. The mention of the facility's alignment with Clearwater's strategic growth plans suggests a focus on economies of scale and improved operational efficiency. For Graphic Packaging, divesting the facility allows for a refined focus on their Texarkana facility to meet the demand for sustainable packaging solutions, a growing segment within the industry.

The transaction's impact on the stock market will hinge on investor perception of the strategic benefits versus the costs. If the market views the sale as a positive realignment for both companies, it could lead to a favorable response in their stock prices. Conversely, any concerns about the loss of a productive asset for Graphic Packaging or integration risks for Clearwater Paper could temper investor enthusiasm.

Financial Analyst

From a financial standpoint, the transaction's valuation based on Adjusted EBITDA merits attention. Adjusted EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation and Amortization, is a common metric used to evaluate a company's operating performance by removing the effects of financing and accounting decisions. A $100 million Adjusted EBITDA suggests a robust performance for the Augusta facility, contributing significantly to Graphic Packaging's bottom line.

The infusion of $700 million in capital for Graphic Packaging could be allocated towards debt reduction, share repurchases, or reinvestment into core business areas, each with distinct implications for shareholder value. Debt reduction could improve the company's leverage ratios and credit profile, potentially lowering borrowing costs. Share repurchases could signal confidence in the company's future prospects, supporting the stock price. Reinvestment into high-growth areas could drive future earnings growth, although it carries execution risk.

For Clearwater Paper, funding the acquisition will likely involve a mix of debt and cash reserves. The financial structure of the deal will affect the company's leverage and liquidity. Investors will scrutinize the terms of financing to assess the sustainability of the debt load and the potential for future earnings to service this debt.

Legal Expert

The transaction between Graphic Packaging and Clearwater Paper is subject to regulatory approvals, which introduces a layer of uncertainty until the deal's closure. Regulatory scrutiny will likely focus on antitrust considerations, ensuring that the acquisition does not create undue market concentration or hinder competition. The involvement of legal counsel from Pillsbury, Winthrop, Shaw, Pittman LLP for Clearwater and Alston & Bird LLP for Graphic Packaging underscores the complexity and importance of navigating legal hurdles in such transactions.

Environmental considerations will also play a critical role, as indicated by the engagement of Stoel, Rives LLP for environmental counsel. The paper and packaging industry is highly regulated in terms of environmental impact and the due diligence process will include a thorough review of the Augusta facility's compliance with environmental regulations. Any issues uncovered could alter the terms of the deal or its valuation, affecting stakeholder interests.

For investors, the successful navigation of these legal and regulatory challenges is crucial. Delays or complications can affect the timeline and final terms of the transaction, potentially impacting the anticipated benefits for both companies.

ATLANTA and SPOKANE, Wash., Feb. 20, 2024 /PRNewswire/ -- Graphic Packaging Holding Company (NYSE:GPK) ("Graphic Packaging"), and Clearwater Paper Corporation (NYSE: CLW) ("Clearwater Paper"), today announced that Graphic Packaging has signed a definitive agreement to sell its Augusta, Georgia bleached paperboard manufacturing facility to Clearwater Paper. The transaction value is approximately $700 million, based on Adjusted EBITDA of approximately $100 million.

"Augusta is an outstanding asset with a great team, which we concluded is a more compelling fit with Clearwater Paper's strategic growth plans than our own. Bleached paperboard plays a major role in sustainable consumer packaging, and we will continue to service growing foodservice and packaging demand with bleached paperboard from our Texarkana facility," said Michael Doss, President and Chief Executive Officer of Graphic Packaging.

Clearwater Paper Chief Executive Officer Arsen Kitch added, "Augusta is a great fit with our strategy and improves our position as a premier, independent paperboard supplier to North American converters. I look forward to welcoming the Augusta team to Clearwater Paper as we work together to build a more scaled paperboard business to service our customers."

The transaction is subject to regulatory approvals and is currently expected to close in the second quarter of 2024. TD Securities is serving as Clearwater Paper's financial advisor and Pillsbury, Winthrop, Shaw, Pittman LLP is lead transaction counsel for Clearwater and Stoel, Rives LLP is providing environmental counsel. The financial advisor for Graphic Packaging is BofA Securities and Alston & Bird LLP is lead transaction counsel.

About Graphic Packaging Holding Company
Graphic Packaging Holding Company (NYSE: GPK), headquartered in Atlanta, Georgia, designs and produces consumer packaging that makes a world of difference. An industry leader in innovation, the Company is committed to reducing the environmental footprint of consumer packaging. Graphic Packaging operates a global network of design and manufacturing facilities serving the world's most widely recognized brands in food, beverage, foodservice, household, and other consumer products. Learn more at www.graphicpkg.com.

About Clearwater Paper Corporation
Clearwater Paper is a premier supplier of private brand tissue products and bleached paperboard. The company's tissue serves private brand market retail customers including grocery, club, mass merchants, and discount stores. The company's paperboard operations serve quality-conscious printers and packaging converters, with services that include custom sheeting, slitting, and cutting. Clearwater Paper's employees build shareholder value by developing strong relationships through quality and service. For additional information on Clearwater Paper, please visit our website at www.clearwaterpaper.com.

Forward-Looking Statements

This communication contains "forward-looking" statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, including statements regarding the proposed transaction between Clearwater and Graphic Packaging. All statements, other than historical facts, including statements regarding the expected timing and structure of the proposed transaction; the ability of the parties to complete the proposed transaction considering the various closing conditions; and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words "may," "will," "should," "potential," "intend," "expect,", "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target" or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) that one or more closing conditions to the transaction, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise; (2) the risk that the proposed transaction may not be completed in the time frame expected by the parties, or at all; (3) unexpected costs, charges or expenses resulting from the proposed transaction; (4) the risk that stockholder litigation in connection with the proposed transaction or other settlements or investigations may affect the timing or occurrence of the contemplated transaction or result in significant costs of defense, indemnification and liability; and (5) other risk factors as detailed from time to time in the Clearwater's and Graphic Packaging's reports filed with the SEC, including their Annual Reports on Form 10-K, periodic quarterly reports on Form 10-Q, periodic current reports on Form 8-K and other documents filed with the SEC. The foregoing list of important factors is not exclusive. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and neither Clearwater nor Graphic Packaging undertake any obligation to update such statements, except as may be required by law.

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SOURCE Graphic Packaging Holding Company

What is the transaction value of Graphic Packaging's Augusta facility sale to Clearwater Paper?

The transaction value is approximately $700 million.

When is the expected closing date for the transaction between Graphic Packaging and Clearwater Paper?

The transaction is expected to close in the second quarter of 2024.

Who is serving as Clearwater Paper's financial advisor for the transaction?

TD Securities is serving as Clearwater Paper's financial advisor.

Who is the lead transaction counsel for Clearwater Paper in the sale of Graphic Packaging's Augusta facility?

Pillsbury, Winthrop, Shaw, Pittman LLP is the lead transaction counsel for Clearwater Paper.

What role does bleached paperboard play in sustainable consumer packaging?

Bleached paperboard plays a major role in sustainable consumer packaging.

Which facility will Graphic Packaging continue to use to service growing foodservice and packaging demand?

Graphic Packaging will continue to use its Texarkana facility.

Who is the President and Chief Executive Officer of Graphic Packaging?

Michael Doss is the President and Chief Executive Officer of Graphic Packaging.

Who is the Chief Executive Officer of Clearwater Paper?

Arsen Kitch is the Chief Executive Officer of Clearwater Paper.