Sealed Air Corporation (SEE) will acquire privately held, Diversey Holdings Inc, a leading solutions provider to the global cleaning and sanitization market, for $4.3 billion. The transaction, subject to the satisfaction of customary closing conditions, is expected to be completed in 2011 and accretive to earnings in the first full year following completion.
About Diversey
Sturtevant, Wisconsin-based Diversey provides cleaning, sanitization and hygiene solutions to industrial and retail customers in the food and beverage, food service, health care, and lodging sectors, as well as to building service contractors worldwide.
Diversey has more than 10,000 employees and operations in more than 60 countries. It is a controlled by members of the Johnson family and Clayton, Dubilier & Rice, LLC. Diversey clocked net sales of $3.1 billion in its fiscal 2010 and adjusted EBITDA of $453 million.
Transaction Details
As per the agreement, Sealed Air will pay Diversey $2.1 billion in cash and 31.7 million shares of its common stock valued at $25.68 per share based on Sealed Air’s closing stock price on May 31, 2011. The purchase also includes $1.4 billion of net debt to be refinanced, for a total cost of $4.3 billion. Upon closure, Diversey shareholders are expected to own approximately 15% of Sealed Air common stock.
The transaction will be financed with cash on hand and proceeds from committed debt. As of March 31, 2011, Sealed Air had cash and cash equivalents of $696 million, up from $676 million as of December 31, 2010. As of March 31, 2011, the company’s long-term debt stood at $1,398 million and the debt-to-capitalization ratio improved to 57% from 59% as of December 31, 2011.
Rationale Behind the Acquisition
With this acquisition, Sealed Air will expand its presence beyond specialty packaging solutions by gaining access into a $40 billion chemical cleaning and hygiene industry. This combination is expected to enhance Sealed Air’s earnings per share and free cash flow generation, creating meaningful value for its shareholders.
The transaction is expected to generate approximately $30 million in total cost synergies in the first full year after completion, and approximately $50 million in the year after.
Diversey has operations in more than 60 countries and is a market leader in Europe, Asia Pacific, Turkey, Brazil, Africa and other high growth developing regions. Sealed Air will further reinforce its global footprint and will be uniquely positioned to capitalize on the requirement for improving hygiene and food safety standards in developing markets.
Sealed Air will generate more than 60% of its revenue from outside North America and 21% in developing regions.
Sealed Air and Diversey have common customers and end markets that expands opportunities to grow revenue. Both companies provide customized solutions involving equipment, supplies and services, offered in many cases through the same distributors, to customers in end markets including food processing, food service, office management and retail.
With this combination, Sealed Air will offer customers a broader array of products and services, including Diversey’s SmartDose dosing for cleaners, Optifill sealable prescription fulfillment systems, Taski Swingo XP floor cleaning equipment and Oxivir disinfectants. The combined company and will be well positioned to meet customers’ growing demand, simultaneously reducing customer costs through increased efficiencies.
The acquisition is the second largest in company history, behind the $4.8 billion purchase of the Cryovac food-packaging business in 1998 from W.R. Grace & Co. We remain skeptical considering the magnitude of the acquisition and the inherent risks of integration.
Furthermore, increase in debt following the acquisition remains a worry. The shares of Sealed Air currently retain a Zacks #4 Rank (short-term Sell rating).
Elmwood Park, New Jersey-based Sealed Air Corp. is a major specialty packaging services provider catering to a diverse set of end markets. The company operates in the United States and in 50 other countries with packaging and performance-based materials and equipment systems under several market leading brands serving food, medical and an array of industrial and consumer applications.
The company reports its operations in four segments: Food Packaging, Protective Packaging, Food Solutions and the Other Category segment. Sealed Air competes with the likes of Bemis Company Inc. (BMS), Sonoco Products Co. (SON) and privately held Printpack, Inc.
BEMIS (BMS): Free Stock Analysis Report
SEALED AIR CORP (SEE): Free Stock Analysis Report
Be the first to comment