Shorewood Jumps as Chesapeake Sweetens Its Hostile Bid

Chesapeake also filed a suit against the takeover target, which claims that Shorewood directors have breached fiduciary duties under Delaware law.
Publish date:

Shares of

Shorewood Packaging


jumped as



sweetened its hostile bid for the smaller paper-products company.

Chesapeake also filed a suit against the takeover target, which claims that Shorewood directors have breached fiduciary duties under Delaware law.

The New York-based company's stock rose 1 1/8, or 7%, to 16 13/16 as Chesapeake tendered an offer of $500 million, or $17.25 a share, up 4% from the original offer in November of $480 million, or $16.50 per share. (Sherwood settled up 1 9/16 , or 10%, to 17 1/4.)

Chesapeake edged up 3/16 to 31. (Chesapeake settled up 3/16, or 1%, to 31.)

Chesapeake manufactures tissue products and specialty packaging. Shorewood produces paperboard packaging for cosmetics, videos, music and software.

In its filing, Chesapeake is seeking "injunctive relief prohibiting Shorewood and its directors from taking certain actions to thwart or interfere with the tender offer and an anticipated solicitation of written consents from Shorewood's stockholders," according to a release made by the company.

On Monday, Chesapeake walked through Shorewood's back door by acquiring 4.1 million shares of the target through an institutional investor for $17.25 a share.

Thomas Johnson, president and chief executive officer of Chesapeake, said in a statement released Monday: "We believe Chesapeake's acquisition of Shorewood would create, under Chesapeake's leadership, one of the world's premier specialty packaging and merchandising companies, enhancing Chesapeake's position as a leader in this segment and benefiting customers through one-stop shopping for complementary products."

Thursday, Shorewood's board members called in its goal-line defense against the threatening bid, according to people familiar with the situation. Faced with the hostile bid, the board raised its shareholder simple majority by-law to two-thirds, making it more difficult for encroaching companies to win shareholder approval.

"The super majority by-law is a blatant and undisguised effort by the Shorewood board to entrench themselves and disenfranchise Shorewood's stockholders," said a spokesperson for Chesapeake. "What we did was go straight to the shareholders."

Stephen Keane, an analyst at

Robert W. Baird & Co.

, said, "It would appear to me that Chesapeake is in the driver's seat with good cash flow from the sale of more than 200,000 acres of timberland and the sale of its Wisconsin tissue business to

Georgia Pacific


, which brought in about $700 million." Keane rates Chesapeake market perform. His firm has not underwritten any offering for the company and does not cover Shorewood. "But with the stock price moving up, it looks like someone's anticipating a higher bid."

The competitive history between the two companies reached a critical point in England in January, when the two bid against each other for

Field Plc

, a British manufacturer of folding cartons and adhesive labels.

"Chesapeake made an offer for Field, then Shorewood made a higher bid and Chesapeake came back with yet, a higher bid and Sherwood backed off," Keane recalled.

Shorewood said it was considering a $40-per-share offer for the larger Chesapeake earlier this year and Chesapeake countered with a tendered offer of $480 million, or $16.50 a share, on Nov. 18.

A company spokesperson said that Chesapeake had been interested in Shorewood since 1998 and that it wasn't intended as a "Pac-Man defense," where the target company bids for its potential acquirer. "Chesapeake has the money so the question is, is $17.25 the price that they (Shorewood) will accept?" Keane said.