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TheStreet Open House

Sonoco's Patient Investors Rewarded With Weidenhammer Deal

NEW YORK (TheStreet) – Sonoco (SON) investors have been patient all year, waiting for management to uphold their promise of delivering long-term value. That patience has paid off.

Sonoco, a global provider of a variety of consumer packaging products, just announced a $383 million all-cash deal for Weidenhammer Packaging Group. Weidenhammer, headquartered in Hockenheinm Germany, will strengthen the South Carolina-based Sonoco in areas like decorated convenience packaging. Not to mention, Sonoco will now have much needed growth opportunities in Europe.

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Shares, at $41, are down 1.3% on the year to date; the S&P 500 is up 8% for the same period. But more gains are on the horizon. In the next 12 months, these shares should trade around $40 to $50, or 20% higher. 

Weidenhammer's expertise in composite cans and composite drums will give Sonoco added capabilities in areas that would have taken years to develop on its own. Sonoco, which competes with Bemis Company (BMS) and Rock-Tenn (RKT) , now has added muscle and enough product differentiation to help expand its gross margins.

The deal, which is expected to close in the fourth quarter of 2014, should be accretive to Sonoco's 2015 base earnings. Prior to the deal, Wall Street was looking for 2015 earnings of $2.69 per share, according to Yahoo! Finance. Sonoco may now be able to produce 2015 earnings of close to 9 cents per share.

A Sonoco representative was not available for comment.

Assuming that management can extract future accretive benefits from cost synergies and operational improvements, investors should do well.

This is because aside from Sonoco's lead in areas like supply chain services and protective packaging, the company immediately becomes the global leader in rigid paper packaging. Sonoco will now be able to sell its product in emerging markets like South America and Eastern Europe.

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Also, Weidenhammer's innovative capabilities should help drive Sonoco's organic growth efforts though what the company calls its i6 Innovation Process.

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