Sonoco Products Co. (SON) Mergers&Aquisitions Call October 10, 2011 10:00 am ET Executives Roger P. Schrum – Vice President, Investor Relations and Corporate Affairs Harris E. DeLoach, Jr., – Chairman and Chief Executive Officer Jack Sanders – President and Chief Operating Officer Barry L. Saunders – Vice President and Chief Financial Officer Analysts James Armstrong – Vertical Research Partners Matt Wooten – Robert W. Baird Steve Chercover – D.A. Davidson & Co. Ian Zaffino – Oppenheimer & Co. Phil Gresh – JPMorgan Presentation Operator
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With that introduction, I’ll turn it over to Harris DeLoach.Harris E. DeLoach, Jr. Thank you, Roger. As you no doubt know, we are pleased to announce today that Sonoco has signed a definitive agreement to acquire Tegrant Corporation, a leading provider of highly engineered, protective, temperature-assured and retail security packaging solutions, from Metalmark Capital for $550 million in cash. The acquisition of Tegrant is the largest in Sonoco’s long history and we are very excited that our combined businesses will create a North American leader in multimaterial Protective Packaging. The addition of Tegrant and its family of businesses significantly advances the products, services and capabilities that we can offer both our industrial and consumer customers. As we evaluated Tegrant, we found a company with strong leadership, good growth potential, similar values and culture, and a very dedicated team of employees committed to best surveilling the needs of their customers. Tegrant is projected to generate 2011 sales of about $440 million and when combined, Sonoco is expected to generate sales of approximately $5 billion in 2012. The transaction is projected to be accretive to Sonoco’s 2012 earnings and following the normal regulatory review, we believe the transaction will close in November of 2011. Barry will discuss further the financial details of this transaction, but we expect to finance the acquisition through debt. As we have with past acquisitions, we will use our strong free cash flow to reduce debt over the next few years. With that very brief overview, let me turn the call over to Jack who will give you a review of Tegrant’s operations and further explain why we are so excited about these capabilities. Jack? Jack Sanders Thank you, Harris. If you have heard Harris and me speak over the past several months, you know that we’ve been targeting expansion of our Protective Packaging business and hopes of finding a company that would better diversify our capabilities and product mix. Tegrant fit what we were looking for.
If you’ll turn to slide four, let me give you an overview of Tegrant and its businesses. For those of you who are not familiar with Tegrant, it’s headquartered in DeKalb, Illinois, and operates three strategic business units. Protexic brands, the largest of Tegrant’s businesses is North America’s premier manufacturer of molded expanded plastic foam for custom packaging solutions. Protexic expects to have 2011 estimated revenues of $214 million operates 15 plants primarily in North America, and has about 1,000 employees.Included in Protexic’s 2011 revenues is the January acquisition of Createc, an EPS Protective Packaging business focused on the appliance and automotive industries. Tegrant’s ThermoSafe brands is the leader in temperature-assured Protective Packaging, serving a variety of life science and food markets. Estimated 2011 revenues for ThermoSafe are $111 million. It operates eight plants and has nearly 500 employees. Another well recognized brand under the Tegrant umbrella is Alloyd Brands, which is the market leader in consumer retail security packaging. Alloyd is projected to have revenues of $118 million in 2011 and operates 11 facilities including research and engineering centers. Alloyd has nearly 800 employees. Let’s take a little closer look at each of these businesses and talk more about the opportunities we see for their future development. Again, I’ll start with Protexic. They are the clear leader in engineered molded foam packaging solutions and nearly twice the size of their nearest competitor. It’s also a great fit with Sonoco’s existing paper-based Protective Packaging business and allows us to offer a total solution for our customers in terms of material, package design and testing. Protexic serves several important consumer and industrial markets with consumer electronics, automotive and industrial products representing approximately 65% of their served markets. Read the rest of this transcript for free on seekingalpha.com