|Packaging stocks in vogue after Smurfit-Stone deal|
By Ernest Scheyder
NEW YORK | Mon Jan 24, 2011 4:49pm EST
NEW YORK (Reuters) - Paper and packaging stocks registered big rises on Monday after RockTenn Co's (RKT.N) $3.5 billion bid for Smurfit-Stone Container Corp (SSCC.N) highlighted the undervalued sector.
Demand for containerboard used to ship goods and wrap food dropped sharply during the recession, causing investors to flee the sector. For example, the shares of sector leader International Paper Co (IP.N), which closed Monday at $28.82, dropped to lows near $4 per share in early 2009.
Yet as the economy recovered, Wall Street tip-toed back. That move got pushed into overdrive on Sunday when RockTenn agreed to buy its bigger rival, Smurfit-Stone, for $35 per share in cash and stock.
"This is a great business that has been transformed over a fairly long period of time," RockTenn Chief Executive Jim Rubright told Reuters.
Smurfit-Stone's strong earnings during the past six months "convinced us of the value of those assets," he said.
(For a Reuters Insider interview on the deal, click on: link.reuters.com/mem67r)
Smurfit-Stone shares jumped $7.48, or 27.2 percent, to close Monday at $35, while RockTenn shares rose $2.13, or 3.7 percent, to $59.31.
International Paper shares rose 3.2 percent, MeadWestvaco Corp (MWV.N) rose 3.9 percent, Packaging Corp of America (PKG.N) shares were up 1.8 percent, Temple-Inland Inc (TIN.N) rose 5.3 percent and KapStone Paper and Packaging Corp (KS.N) was up 4.6 percent.
The deal will create the second-largest packager in North America after International Paper and will allow RockTenn to grow in the lucrative food packaging area.
"The business really is going to perform closely with (U.S. gross domestic product), which means in our view that it's going to grow," RockTenn Chief Executive James Rubright said on a conference call.
The deal price of $35 per Smurfit-Stone share represented a 27 percent premium to the stock's closing price of $27.52 on Friday.
After the deal closes, about 56 percent of the combined companies will be controlled by legacy RockTenn shareholders, with the rest controlled by Smurfit-Stone legacy shareholders.
RockTenn's corporate headquarters will remain in Norcross, Georgia. The company has financing for the deal from Wells Fargo & Co (WFC.N), Rabobank NV RABN.UL and Sun Trust.
(Reporting by Ernest Scheyder; editing by John Wallace, Dave Zimmerman and Andre Grenon)