Nordic pulp & paper firms get a lift as SCA divests packaging business

Svenska Cellulosa Aktiebolaget (OMX: SCA B) has agreed to divest its packaging business excluding two krafliner mills in Sweden to British paper and plastic packaging materials and office supplies group DS Smith Plc for a debt free price of 1.7 billion Euros. The 2010 net sales of the operations in question were approximately 2.5 billion Euros and the business was profitable as has been the norm with an operating profit of about 117 million. The purchase price equals an EBITDA multiple for Q4 2010 – Q3 2011 of 6.4.

SCA packaging operations excluding the kraftliner mills employ 12 000 people and is the second largest packaging business in Europe with market share above 8%. The geographical focus is in Northern and Central Europe. The products are Long recycling, Long packaging and Short paper (product lines for recycled fibre, corrugated and containerboard). The business is not particularly cyclical and maintains a good outlook and this can be seen in the price.

SCA is focusing on growing its hygiene products business. The company is already the world’s third largest hygiene products company. SCA’s hygiene business is further divided to products for Personal Care and Tissue. In Personal Care segments such as incontinence care, baby diapers and feminine care are areas of particular strength for SCA. SCA also recently made a binding offer for Georgia-Pacific’s European tissue business worth 1.32 billion Euros. The company foresees double-digit growth in both Personal Care and Tissue. Post-divestment the hygiene business would account for circa 80% of SCA’s net sales.

SCA will take a goodwill write-down of 4 billion or so abolishing the goodwill related to remaining krafliner operations. SCA is keeping them since they are very integrated with the company’s forest products operations. The debt/equity ratio will come down to 0.5 providing this deal and the Georgia-Pacific offer goes through as planned. The deal is subject to DS Smith shareholder approval and EU commission competition authorities ruling. DS Smith aims to finance the deal with debt and equity issuance. Closing is expected in Q2 2012. SCA gained almost 10% in Stockholm and DS Smith was up by nearly 4% in London.