OAKLAND, March 7, 2014 (PPI Pulp & Paper Week) -In a move that would give it a West Coast mill presence and strengthen its leading white-top linerboard position, RockTenn will acquire Simpson Tacoma Kraft Paper from Simpson Lumber for about $343 million, the two companies announced on Mar. 3.
RockTenn said the purchase price reflects an EBITDA multiple of less than six times based on the mill's financial results for the 12 months ending December 2013. From the Tacoma, WA, mill, RockTenn expects "operating efficiencies due to the location of the mill on the West Coast," according to the announcement.
RockTenn, the second largest North American containerboard producer by capacity, is the lone major integrated producer not operating a containerboard mill on the West Coast. International Paper (IP), Georgia-Pacific (G-P), Packaging Corp of America, and Kapstone all run kraft linerboard mills in the Pacific Northwest.
The nonintegrated Tacoma mill last year produced 465,000 tons/yr of containerboard, paper, and pulp on two paper machines and two small pulp dryers. The mill is located next to the Port of Tacoma.
Simpson Tacoma is best known as a leading supplier of white-top linerboard ("Rainier White") grades in the western US. In addition, the mill operates a 55 MW green biomass fuel cogeneration facility that was completed in 2009 for $90 million and sells electricity under a long-term contract with a utility.
RockTenn plans a $60 million commitment for capital spending at the mill during the next three years. The firm told of a seven-year wood chip supply contract with Simpson Lumber for fibering the operation.
'Great strategic fit.'"The Tacoma Kraft Mill is a great strategic fit for RockTenn," said RockTenn CEO Steve Voorhees in a release. "Adding a West Coast mill will improve our ability to satisfy West Coast customers and generate significant operating efficiencies across our system."
RockTenn now trades with other integrated producers and or transports containerboard across the USA to supply independent converters and its own box plants in the West. It runs 10 box plants in the western US, including seven in California and one each in Oregon, Colorado, and Arizona. The company's containerboard mills are all East of the Rockies since predecessor Smurfit-Stone Container shut its big Missoula, MT, linerboard mill in 2009. RockTenn acquired Smurfit-Stone in 2011.
"Tacoma Kraft has been on/off the market for nearly two decades...and was the last paper mill in Simpson's portfolio," Deutsche Bank analyst Mark Wilde said.
Privately-owned Simpson once owned nearly a dozen printing/writing paper mills across the USA and interest in a pulp mill in Chile. Simpson acquired the Tacoma mill from Champion International in mid-1985 after the latter acquired St. Regis.
Wilde said RockTenn is "focused on building a West Coast base."
The company was reported to be a leading bidder for Longview Paper & Packaging, which KapStone acquired last year.
White top leader.Another attraction of the multi-grade Simpson Tacoma mill is its main focus on white-top linerboard. As the largest North American white top producer, RockTenn runs machines with more than 1.0 million tons/yr of capacity and the acquisition of Simpson Tacoma provides another 230,000 tons/yr in the West, a region that would complement the company's existing white top mills in West Point, VA (695,000 tons/yr) and La Tuque, QC (344,000 tons/yr).
Simpson Tacoma is the fourth largest white top producer after RockTenn, IP (425,000 tons/yr), and G-P (305,000 tons/yr) in the 2.1-million ton North American white top market, according to RISI Mill Intelligence estimates. IP's Springfield, OR, mill is the only other mill in the West with some white top capacity (86,000 tons/yr).
The deal would only raise RockTenn's overall share of the containerboard market to about 20% from 19%, according to RISI estimates. Simpson Tacoma is about the sixteenth largest containerboard producer in North America, according to RISI estimates. IP is the largest producer with a 32% market share.
White-top linerboard is used in point-of-purchase displays and high graphics corrugated packaging, and RockTenn's display division is rapidly expanding.
Multi-product mill.Built originally in 1936 as a pulp mill, Tacoma Kraft added one paper machine in 1948 and a second in 1961. PM 13 has a 164 in. trim and is a swing machine which produces 70,000 tons/yr of kraft paper and unbleached kraft linerboard. The larger PM 14 has a 240-in. trim and has capacity to make 338,000 tons/yr of white top (31-74 lb) and some unbleached kraft linerboard.
RISI Mill Intelligence estimates the mill has capacity to produce 230,000 tons/yr of white top kraft linerboard, 133,000 tons/yr of unbleached kraft linerboard and 45,000 tons/yr of unbleached and bleached kraft paper (including multiwall and bag paper, and kraft converting) and 68,000 ton/yr of unbleached kraft softwood pulp on the mill's two small pulp dryers.
Two continuous digesters run at the mill and can produce 260,000 ton/yr of unbleached kraft pulp and 95,000 tons/yr of bleached kraft pulp. In addition, the mill consumes about 105,000 tons/yr of old corrugated containers plus fillers, according to RISI estimates. RockTenn runs recycling plants in Portland, OR, and Anchorage, AK, and in the last year or so shut recycling plants in Seattle and Renton, WA. Contacts said that the Tacoma mill is short on inventory space, with room for holding about two days of supply.
More deals ahead?As a nonintegrated, independent market player, Simpson Tacoma was an early leader in developing linerboard export markets in Asia as an outlet for its production, according to one trader.
RISI Mill Intelligence estimates that Simpson Tacoma is a fourth quartile white-top and unbleached kraft linerboard producer in North America like many mills on the West Coast.
With its box plant system in the West, RockTenn may streamline production at the Tacoma mill and focus its production more on linerboard, a contact said.
Wilde said Simpson did "a lot to optimize the plant over the years." He said Simpson is unlikely to take RockTenn away from "looking at any much larger deals that may arise."
"We look forward to working with the entire Simpson team to build on the fine relationships they have developed over the years with the Tacoma Kraft Mill's customers in the western US," said RockTenn corrugated packaging segment pres Jim Porter.
"The Tacoma Kraft Mill will be better positioned as part of RockTenn -- a successful fiber-based company that is committed to the long-term success of the mill," said Simpson Lumber pres Allan Trinkwald in announcing the deal.
RockTennplans to close its box plant in Grand Prairie, TX, on Apr. 25, laying off 65 workers, the company told state and local officials. The formerSmurfit-Stoneplant, where the firm runs an 87-in. corrugator, is in the Dallas/Fort Worth metropolitan area. RKT operates another large box plant in Fort Worth and a total of four in Texas.