|
KapStone’s strategy: Stability and growth
By Dan McCue
Staff Writer
Roger W. Stone, chairman and CEO of KapStone Paper and Packaging Corp., didn’t mince words the April morning he sat down with financial analysts to talk about his planned purchase of MeadWestvaco’s kraft paper mill in North Charleston.
Stone’s Northbrook, Ill.-based corporation just committed to paying $485 million in cash for the 71-year-old mill and several other MeadWestvaco assets in South Carolina.
But the uppermost issue on his mind that Monday morning was the journey rather than the prize at the end of it.
“This acquisition took an extraordinary amount of time to complete — certainly the longest in my career,” Stone said in his first public comments about the deal, which included the mill’s on-site co-generation plant, a lumber mill in Summerville, and chip mills located in Elgin, Hampton, Andrews and Kinards.
The challenge, he explained, was having to “carve out” MeadWestvaco’s paper business from its chemical division which shares the same site on the Cooper River.
“But it was well worth the time and the effort,” Stone said. “In all candor, we think that this is the perfect acquisition for us, one that allows us to build on our strengths and focus on the things we do best.”
That seemed to satisfy the industry analysts. But who is the KapStone Paper and Packaging Corp. and what can be divined from its track record in the industry?
Stability of company
Even with a tightening of the credit market nationwide, major banks were willing to make loan commitments to KapStone that totaled more than half a billion dollars for the MeadWestvaco deal.
KapStone was able to finance a $485 million five-year loan and $100 million line of revolving credit from Bank of America and LaSalle Bank based on its strong balance sheet and its robust cash flow, said Andrea Tarbox, KapStone’s vice president and CFO.
She said that kind of financial backing speaks to the strength of KapStone and the strength of the MeadWestvaco assets the company is buying. Tarbox said the current financing will be used to buy the MeadWestvaco properties and pay off KapStone’s existing debt.
The company’s debt related to the new deal is heavily back-ended, Tarbox said. The terms of the financing call for KapStone to repay the financial institution’s 7% of the loans the first year, 10% the second, 12.5 % the third and fourth years, and 57.5% the fifth.
“However, we expect to pay off the debt much faster than that,” Tarbox said.
Been there, done that
This isn’t the first big deal that Stone has put together.
According to documents filed with the U.S. Securities and Exchange Commission, he has spent a lifetime in the paper industry and for a time ran a private equity firm, Stone-Kaplan Investment LLC.
As chairman and CEO of Stone Container Corp., a multinational paper company, Stone oversaw the successful merger of Stone Container with the Jefferson Smurfit Container Corp. and served as the first president and CEO of the combined company, Smurfit-Stone Container, which has South Carolina locations in Florence, Columbia and Latta.
When he formed KapStone Paper and Packaging Corp., in April 2005, Stone took money from the corporation’s initial stock offering and dedicated it to due diligence for more business mergers.
In January 2007, KapStone bought International Paper Co.’s kraft paper business. The assets included an unbleached kraft paper mill in Roanoke Rapids, N.C., and a paper bag manufacturing facility in Fordyce, Ark.
Employees and unions
KapStone doesn’t have a reputation for downsizing once its purchase agreements are finalized if its earlier International Paper deal is an indication.
There have been no reported layoffs at either the North Carolina or Arkansas facilities since KapStone acquired them, and the plan outlined both by Matt Kaplan, KapStone’s president and COO and company SEC filings state that the same level of stability will hold true in North Charleston.
The deal calls for the management of the North Charleston mill and all 1,100 of MeadWestvaco’s employees at the mill and its affiliated facilities, to remain in place and transition to KapStone.
“Clearly, one of the most important assets of the business is its people,” Kaplan said. “We need them to work for us. Frankly, they’re what made the mill everything it is today.”
Stone said the existing labor agreements at the plant will be honored.
Bob Wood, spokesman for the International Association of Machinists and Aerospace Workers, which represents those workers, said that statement is a good sign from a labor perspective.
“Acquisitions can go one of two ways,” Wood said. “Either the company can come in and work with the union or they can come in and try to break it. In this case, it sounds like the emphasis is on harmony, and acquiring companies rarely go back on their word in these kinds of situations because then all trust is lost between labor and management.”
KapStone’s intention is to capitalize on the North Charleston’s mills strengths rather than try to remake the facility, Kaplan said.
“It has long-term customer relations, a very strong local supplier base, an experienced management team, and engaged union employees who happen to have a new, three-year labor contract in place,” he said.
Buying, not selling
Kapstone sees the North Charleston mill as a way to save money by reducing energy costs and increasing productivity by making more efficient use of machines and processes at existing locations. It’s a matter of scaling growth.
The North Charleston mill and associated facilities would provide the company with several advantages in a competitive marketplace, Stone said.
“For one, 80% of the electricity used at the North Charleston mill comes from the cogeneration plant, which is very advantageous in terms of cost,” he said. “Secondly, the mill is located in an excellent wood basket. Both of our mills handle only 100% virgin material, so we have no exposure in the high cost recycled fiber market.”
Stone emphasized the company would continue to run its chip mills and that it would not look to see them off when the U.S. home construction market recovers.
But if he’s not intending to sell any of the assets he’s about to acquire, Stone said he’s not entirely out of the buyer’s market either.
“I think we’re very conscious of the debt and want to manage it well, but our cash flow provides us with the ability to do what makes sense going forward,” he said. “We would consider buying other assets, but debt reduction is a major priority.”
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@scbiznews.com.
|
E-Mail This Article
Printer-Friendly Version