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The Deal: Investor Argues Boise Selling Too Cheaply

NEW YORK ( TheStreet) -- A large holder of Boise (BZ) shares came out Tuesday, Sept. 24, against the paper and packaging company's planned $2 billion sale to Packaging Corp. of America (PKG - Get Report), saying that the cash and assumed debt deal undervalues the company.

Carlson Capital in a letter to Boise's board included in a regulatory filing said it believes the Idaho-based company is worth between $14 to $17 per share, at least 10% higher than the $12.55 per share Boise accepted in a deal announced Sept. 16. That deal valued Boise's equity at about $1.28 billion, with Packaging Corp. also taking on about $714 million in Boise debt.

Dallas-based Carlson, which through affiliates owns about 6.6% of Boise's shares, said it does not plan to vote in favor of the proposed deal. The firm said that it believes Boise would be better served separating its paper and packaging segments before participating in industry consolidation.

"From our vantage, executing a business separation substantially enhances the value that could be achieved in a strategic sale of Boise Packaging relative to the proposed total company sale to PCA today," Carlson's Joshua Wool wrote in a letter to the board. "Unshackled from the secularly challenged Paper segment, Boise Packaging would appeal to a larger universe of potential strategic buyers."

Wool said KapStone Paper and Packaging Corp., which in June announced plans to acquire Longview Fibre Paper and Packaging Inc. for $1.025 billion, could be interested in Boise's packaging assets.

Carlson also suggested that Boise did not take into account recent upticks in paper pricing, with Wool suggesting that positive paper developments caught Packaging Corp. off guard and, therefore, "understandably rushed to consummate a deal before resulting favorable price trends overshadowed a takeover premium that may have looked more reasonable at earlier stages of the negotiation."

The firm had been pushing Boise to consider a split prior to the deal announcement. Carlson included in its filing a July 19 letter to Boise management outlining its rational for separating paper from packaging.

Shares of Boise traded up 18 cents to $12.70 apiece on Tuesday afternoon, above the takeout price but below Carlson's estimated valuation.
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