Lake Forest, Illinois–based Packaging Corporation of America (PCA) announced Monday that it plans to acquire Idaho-based packaging and paper products maker Boise Inc. for approximately $1.28 billion, citing a desire to expand its output of containerboard and corrugated products and to gain market presence in the Pacific Northeast.
The offer will see PCA pay $12.55 in cash for each share of Boise, a 26 percent premium over Boise's Friday closing price. The acquisition also includes the assumption of $714 million in debt, which pushes the total deal value to nearly $2 billion.
In a joint press release issued Monday, the companies say the acquisition is expected to add to PCA's earnings immediately. Already, the company's shares rose 10.9 percent by close of trading Monday, with Boise shares up 26.1 percent. The combined companies generated $5.5 billion in sales in the 12 months ending June 30, according to the press release, and $879 million in EBITDA, excluding special items.
The deal is one of the first to utilize a new amendment to the Delaware merger statute intended to ease complications when conducting two-step tender offers, says Mayer Brown partner Andrew Noreuil in Chicago, who, along with fellow Mayer Brown corporate and securities partners Paul Crimmins and John Sagan, represented PCA on its proposed purchase.
Under Delaware General Corporation Law section 251(h), companies can now, under certain circumstances, finalize second-step mergers without shareholder approval. Before the amendment went into effect August 1, companies that didn't succeed in acquiring 90 percent of outstanding shares by the close of a tender offer had to implement a work-around if they wanted to consummate the deal as a short-form merger rather than as a shareholder-approved merger, which requires mailing a proxy statement and holding a meeting to vote on the deal, a process that can take three or four months to complete.
Two strategies often utilized to avoid shareholder approval are top-up options, which dictate that as long as an agreed-upon percentage of shares is tendered, the target will issue enough stock to bring the buyer above the 90 percent threshold; and dual-track structures (also called Burger King structures after the 2010 take-private acquisition of the fast food chain), in which a two-step tender offer and one-step merger are executed at the same time in the event that the tender offer fails. Both strategies add time and expense, Noreuil says, making 251(h) a welcome addition to the law. (Top-ups are also not always possible if a target doesn't have sufficient authorized, unissued shares to make up the difference between the ownership level achieved in the tender and the requisite 90 percent.)
When structuring the PCA deal with Boise, Noreuil and his team turned to the new structure because of its efficiency and because, he says, the company wouldn't have had enough authorized shares to do a top-up. "This is why the statute was passed," Noreuil says. "This is the exact issue they intended to address."
Mayer Brown lawyers have advised PCA for five years on mergers and acquisitions, credit agreements, and capital markets matters, according to Crimmins. The relationship stems from former Mayer Brown partner Kent Pflederer, who joined the Illinois company as general counsel in 2007 after serving in another in-house role.
Noreuil, Crimmins, and Sagan, all based in Chicago, led a deal team that also included lawyers from Mayer Brown’s corporate, employment and benefits, antitrust, banking, tax, litigation, and intellectual property practices in Chicago, New York, Washington, D.C., and Paris (the firm declined to provide the names of those lawyers).
Skadden, Arps, Slate, Meagher & Flom advised Boise on the deal, with a team made up of M&A partner Margaret Brown, counsel Andrew Kopans, and associates Nathaniel Adams and Adam King, all in Boston; tax partner Cliff Gross and associate Paul Schockett in Washington, D.C.; and executive compensation and benefits counsel Timothy Nelson in Boston.