Packaging Corp of America (NYSE:PKG), the fourth largest manufacturer of container board and corrugated packaging products in the United States, agreed to acquire its rival Boise Inc. (NYSE:BZ) for $12.55 per share in cash to increase its container board capacity.

Packaging Corp of America

Packaging Corp cost of the transaction

The aggregate cost of the transaction is $1.9995 billion including the outstanding liabilities of Boise Inc. (NYSE:BZ) worth $714 million. According to Packaging Corp of America (NYSE:PKG), the combined company generated $5.5 billion sales and $879 million EBITDA excluding special items over the past twelve months that ended June 30.

According to Packaging Corp of America (NYSE:PKG), the acquisition price represents a multiple of 6x adjusted LTM EBITDA of $297 million (excluding special items. The company expected that the transaction would be accretive to its earnings immediately.

The acquisition of Boise Inc. (NYSE:BZ) will allow Packaging Corp of America (NYSE:PKG) to increase its containerboard capacity by 42 percent from 2.6 million tons to 3.7 million tons, and to expand its presence in the Pacific Northwest.

Merger to generate millions in pre-tax benefits

Packaging Corp of America (NYSE:PKG) estimated that the merger will generate approximately $105 million in pre-tax benefits, which will come from mill-grade optimization, sales mix, cost reductions, lower transportation costs, corrugated products optimization, and SG&A cost reductions.

Mark Kowlzan, CEO of Packaging Corp of America (NYSE:PKG) said, “This acquisition allows us to apply our operating and sales expertise across a much larger system and provides significant growth potential. We look forward to working with the employees of Boise as we integrate our businesses. I am confident, that together, we will achieve significant operating benefits.”

Boise’ CEO in the acquisition

On the other hand, Alexander Toeldte, CEO  of Boise Inc. (NYSE:BZ) said, “PCA’s desire to acquire Boise is a testament to the performance delivered and dedication shown by our employees in our five years as a public company, and the value we have created in a very challenging economic environment. We have been committed to serving our customers with distinction and this transaction will enhance opportunities for even stronger customer service.”

Following the announcement of the transaction, the stock price of Packaging Corp of America (NYSE:PKG) surged by 6.54 percent to $58.12 a share and Boise Inc. (NYSE:BZ) climbed by 26.51 percent to $12.60 per share.

The financial advisors for Packaging Corp of America (NYSE:PKG) and Boise Inc. (NYSE:BZ) were Bank of America Merrill Lynch (BAML) and JP Morgan Securities, respectively.