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Vision and leadership

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Vision and leadership

September 11, 2011 - 16:00

BRUSSELS, Sept. 12, 2011 (RISI) -After three acquisitions costing $5.87 billion in the last six years, RockTenn's chairman and CEO Jim Rubright was again selected by analysts as RISI's North American CEO of the Year. The 2011 honor follows the firm's biggest deal ever - the $3.5 billion purchase of Smurfit-Stone Container that rocketed RockTenn (RKT) into North America's No. 2 containerboard capacity and corrugated position, behind International Paper (IP).
RockTenn's chairman and CEO Jim Rubright

"Personally, it makes me feel that maybe the first award wasn't a mistake," Rubright tellsPPI Pulp & Paper Week. "Much more importantly, this award recognizes the achievements of RockTenn and thus is an award to all of RockTenn's 26,000 employees recognizing their commitment to exceeding their customers' expectations - every day."

The award will be presented to Rubright at RISI's 26th North American Forest Products Conference in San Diego, CA, on Oct. 4. He is to present a keynote address and join the CEO panel at the event.

Rubright first won the honor in 2008, following his firm's $1.07 billion acquisition of Southern Container, a high-margin corrugated box producer with a low-cost 700,000-ton/yr Solvay recycled containerboard mill in Syracuse, NY. He also was selected RISI's Global CEO of the Year in 2009.

Domtar's John Williams won the North American honor last year, Temple-Inland's Doyle Simons was selected in 2009, and IP's John Faraci in 2007.

332% Gain on shareholder return

Rubright's RockTenn reported a total return to shareholders of 332% from 1999 to 2010, its debt-to-EBITDA leverage ratio is down to 2.53x at the end of June this year compared with 2.79x at the end of 1999 because of debt reduction while growing volume and profits, and its 2010 earnings per share (EPS) totaled $5.70 (and a $4.43 adjusted EPS).

Along with Smurfit-Stone and Southern Container, Rubright-led RockTenn acquired Gulf States' Demopolis, AL, mill and 11 folding carton plants in 2005 for $600 million, which provided RKT with a top virgin mill for producing solid bleached sulfate (SBS) board and a bigger diversified piece of carton business, a sustaining sector pegged mainly to retail food packaging. RKT today is No. 4 in North America in boxboard capacity behind IP, MeadWestvaco, and Graphic Packaging, and No 2 in coated recycled board (CRB).

Rubright went for Gulf States because of a belief in bleached board's future. The acquisition placed RockTenn on both sides of bleached/coated board in SBS and CRB.

"During 2007 after the success of the Gulf State acquisition had confirmed our view that the bleached paperboard industry fundamentals had improved significantly, I became convinced that containerboard was exhibiting a number of the same characteristics we'd seen in bleached board," Rubright says. "This gave us the confidence to commit to acquisitions that would dramatically increase our exposure to the containerboard business."

All three deals were important for their individual merits and connections, he adds. "Gulf States brought us a great asset in the Demopolis mill and ... equally importantly, the scale and profitability it contributed enabled us to acquire Southern Container, and the success we had integrating the Gulf State employees with RockTenn helped to convince (Southern's) Stephen Grossman that he should sell his company to us."

Scale and profitability

"Southern Container brought us great assets, great people, another big increase in scale and profitability, and confirmed our economic thesis about the containerboard business. It in turn enabled us to acquire Smurfit-Stone."

Rubright is a disciplined doer - with a strict financial eye, analysts say.

"He comes from a finance background," Vertical Research Partners analyst Chip Dillon says. "What sets him apart ... is that 20 years ago you had more engineering/marketing types and they didn't understand the value of what is now scarce capital. Rubright does."

"Vision, leadership, and determination," adds RBC Capital Markets analyst Paul Quinn. "He is a quick study, decisive, and intolerant of mediocre performance. He attracts employees who want to win," notes Bank of America analyst George Staphos.

After the Gulf States and Southern deals, Rubright generated cash quickly and was "very diligent" about debt reduction while integrating and improving the acquired assets, Dillon says Further, Rubright likes "CFO types" for managers who drive for profitability, Dillon says.

After the $3.5 billion Smurfit deal this year (excluding $700 million in debt assumed), RockTenn refinanced Smurfit's debt and expects $150 million in synergies. RockTenn with Smurfit alters its fiber balance for making board from a big majority in recovered paper furnish (82% in 2010) to a virgin majority (55%).

The firm expects to benefit from millions Smurfit spent improving its corrugated plants.

Dillon credits Rubright with bidding for Smurfit-Stone after major producers largely passed, and "He was a very disciplined buyer and was able to buy on better terms than if he was in an auction that may or may not have included strategic bidders."

Rubright must now "make sure the Smurfit-Stone deal is accretive year-in and year-out for the next two years" reflected in RKT's stock price and earnings. Dillon says.

"It's all about what you can earn or generate in cash per share," Dillon adds. "Rubright will be largely viewed in the future as to his success in terms of his Smurfit deal."

Table 1 - RockTenn under Rubright
1999 2012e
Sales $1,300 $10,500
Net income $40 $490
Paper/board capacity 1,238 9,400
Virgin containerboard 0 5,360
Recycled containerboard 185 2,070
CRB 590 658
SBS 0 470
Market pulp 0 376
URB 463 376
Kraft paper 0 94
Notes: Jim Rubright joined RockTenn at the end of 1999. The 2012e RockTenn run rate sales and net income are for the firm’s fiscal year 2012, which runs from October 2011 through October 2012. The $490 million estimate is the current IBIS analyst consensus forecast. CRB: coated recycled board; URB: uncoated recycled board; SBS: solid bleached sulfate board. Source: Company reports, RISI PPI Pulp & Paper Week estimate.

‘Honeymoon phase' and EPS

"We are still in the honeymoon phase," says RBC's Quinn. "RKT's management enjoys a great reputation for extracting value and increasing efficiency. They have done it before with the prior acquisitions, but nothing of Smurfit's size."

"RKT has increased its financial leverage and earnings volatility through this acquisition at a time when the economy may be decelerating. Integrating Smurfit, and generating the promised synergies and returns in this environment will not be easy," Staphos says.

As a bigger company, Rubright acknowledged his mode of leading changes somewhat.

"Our No. 1 goal at RockTenn is the same today as it was before the acquisition, and that is to be the most respected company in our industry," Rubright says. "We can do that if we focus on being the easiest and best company for our customers to do business with, being the company our co-workers feel that they can achieve the greatest personal success with, and through operational and administrative excellence to allow us to bring the lowest cost structure to our marketplace. ... Two years from now, I believe you will see that we have made great progress in achieving our goal.

"I think there are many ways of being a successful leader and each leader needs to find a way that works for him or her," he continues. "The approach I take works as well for a two-man team as for a large company. I've seen my approach described very well recently in a book by Gary Burnison quoting Lt. General Franklin L. Hagenbeck. Hagenbeck stated that a leader needs to be competent and caring."

Hagenbeck was the 57th superintendent of the United States Military Academy at West Point until retiring in July 2010.

Burnison's 2011 book, "No Fear of Failure," includes interviews with top leaders, such as businessman Carlos Slim, tabbed the world's richest man, PepsiCo chairman and CEO Indra Nooyi, and New York Mayor Michael Bloomberg.

Do well at what you do best

"I try to set an example of competence by doing the absolute best I can in every task I undertake in my job," Rubright states. "And I try my best to be a caring leader. By caring I mean following up on my belief that the best people, the ones I want to work with at RockTenn, basically want to do well what they do best."

In 2007, Rubright was chairman of the board of the American Forest & Paper Assn (AF&PA).

"Jim's chairmanship at AF&PA came during a period of great transition for us," says AF&PA president and CEO Donna Harman. "He had a strong belief in what the association could be and was not afraid to exert the leadership necessary to put us on a path to success."

Rubright was raised in New Jersey, and earned a BA from Yale University and a JD from the University of Virginia Law School. He joined the paper industry with RockTenn in 1999, following positions at energy company Sonat and as a partner at King & Spalding, a law firm active in the US paper industry. Post-Rubright and recently, King & Spalding was a special tax adviser to IP for the 2009 US federal government's black liquor alternative fuel funding; an adviser to RockTenn in acquiring Smurfit-Stone; and a representative for Appleton Papers that gained US import trade duties on Chinese and German lightweight thermal paper.

"RockTenn's Board hired me knowing I had no industry experience, and as I understand it, partly for that reason. I took the job leading RockTenn because I was attracted to the challenge of being successful in an environment where many companies were struggling," Rubright says. "Looking back, it is likely that a hard-to-justify confidence that we could be successful was part of "my decision."

Hard work focus growing up

"As a boy, I grew up in a blue collar home, brown actually, as my father wore khaki work clothes rather than blue ones and my mother didn't start teaching until my sisters were out of the house. I think having a parent who is a teacher can be a terrific advantage in life, I believe it was for me," he recalls. "In addition, I had a father whose self-reliance had no limits and who simply would never give up when it came to overcoming adversity. I worked for him to pay for college operating very old construction equipment and I learned to respect the work ethic and humility of the men I worked with and I hope that some of my Dad's determination rubbed off. Couple that with my belief that manufacturing is the bed rock of wealth creation in any society, and RockTenn's mills and converting plants made a perfect match for me."

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