Caraustar closes acquisition of Newark Group after DOJ review with no divestitures

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Caraustar closes acquisition of Newark Group after DOJ review with no divestitures

February 20, 2015 - 10:04

Caraustar on Feb. 19 said it closed the acquisition of The Newark Group after it cleared a US Dept of Justice (DOJ) antitrust review that did not require any divestitures.

Caraustar, owned by private equity firm H.I.G. Capital, announced the merger in July (P&PW, July 11, 2014, p. 1). Market sources told RISI that the DOJ was investigating the merger up until early January. Newark Group is owned by DDJ Capital, an investment company.

The deal combines the second and third largest producers of uncoated recycled paperboard (URB) used in tube and core, and other products with total capacity of about 847,000 tons/yr. The new company also produces coated recycled board, gypsum wallboard, and recycled containerboard at 13 US mills that operate 1.16 million tons of capacity.

The enterprise value of the purchase has not been disclosed. Moody's estimated Caraustar's 2014 revenues at $745 million and the combination with Newark to increase sales to $1.28 billion.

Caraustar added $395 million to an existing term loan to fund the acquisition.

"The combination of these two companies offers a compelling platform for future growth and will make us more competitive in the end-use customer segments we serve," said Caraustar pres/CEO Michael Patton in a release.

The new company will also operate dozens of tube and core plants, and paper recycling centers, seven folding carton plants, and other converting operations. Also, Caraustar/Newark combined is the ninth largest recovered paper consumer in North America, based on RISI research.

In a December rating action, Moody's noted that Caraustar's debt will nearly double following the acquisition, and it will need significant synergies to bring its leverage more in line with a B2 rating and return its margins to pre-acquisition levels.

"Newark has lower margins than Caraustar, which will initially pressure the margins of the combined company," Moody's added. "The company benefits from vertical integration in the tube and core segment that supports its EBITDA margins as well as from its recycling operation and adequate liquidity."

Axinn, which counseled H.I.G. Capital, and Caraustar, said it secured antitrust clearance with no divestiture or any other remedy required after successfully navigating a more than six-month DOJ investigation, which included a second request, depositions, and meetings with staff.

"The DOJ Antitrust Division has significant experience and institutional knowledge in the pulp and paper space," said Axinn, "so there are no shortcuts in these deals."