The provider of paper and packaging solutions, WestRock Company WRK is set to create a Joint Venture (JV) with Grupo Gondiare in Mexico to manufacture superior packaging solutions for consumers. The JV will be implemented shortly after the transaction is formally approved by Mexico's Antitrust Authority, the Comision Federal de Competencia Economica (COFECE).
Grupo Gondi is one of the chief paper packaging suppliers in the Mexican market, with ten plants in Mexico, supplying innovative paper packaging solutions to over 650 customers. Per the JV, Grupo Gondi and WestRock will combine their operations in Mexico to create a leading paper and packaging company in the country.
Grupo Gondi, as the majority shareholder, will manage the JV with its senior management team, led by Eduardo Posada. The JV will employ around 6,800 people.
WestRock will contribute its three Mexican facilities, which produce corrugated packaging, located in Mexicali, Monterrey and Queretaro, and cash to the JV. The company will also provide technical and commercial resources to the combination. A 25% equity stake in the JV will facilitate WestRock’s expansion in Mexico.
WestRock stands to benefit from its investment in capacity, growth initiatives, spin off of the non-core Specialty business and shareholder friendly capital allocation strategy. Also, the recent acquisition of SP Fiber Holdings will assist the company to meet increasing demand for lighter weight containerboard and kraft paper while broadening its product offering.
Further, WestRock is separating its specialty chemicals business, Ingevity as it is not in line with the company’s business. The spinoff will better position both businesses to pursue their respective operating priorities and strategies. It will also help them to focus on their long-term growth and profitability opportunities.
However, unfavorable foreign currency translation and weak demand in Merchandising Display remain concerns for the company.
WestRock currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Fibria Celulose S.A. FBR, Orchids Paper Products Company TIS and Resolute Forest Products Inc. RFP. All of these stocks carry a Zacks Rank #2 (Buy).
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