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MeadWestvaco Corporation ( MWV - Analyst Report ) has entered into an $860 million “spin-merge” deal under which it will spin off its Consumer and Office Products business. The unit will then merge with ACCO Brands Corporation ( ) , one of the world’s largest office supply manufacturers.
The transaction is expected to be completed in the first half of 2012. At closing, MeadWestvaco shareholders will receive 50.5% of the shares of ACCO Brands stock and the company will receive $460 million of cash. The deal is valued at approximately $860 million based on ACCO Brands’ closing stock price of $6.96 on November 16, 2011.
MeadWestvaco shareholders will receive approximately one share of ACCO Brands for every three shares of MeadWestvaco held as of the record date. The business will be managed by ACCO’s executives and board.
The Consumer & Office Products segment manufactures, sources, markets and distributes school, office and time-management products in North America and Brazil through both retail and commercial channels. Its leading brand names include AMCAL, AT-A-GLANCE, Cambridge, Day Runner, Five Star, Mead and Trapper Keeper.
In fiscal 2010, the Consumer & Office Products segment contributed 14% to MeadWestvaco’s total revenue; through the first nine months of 2011, the business helped generate 12% of MeadWestvaco’s total revenue. The segment reported sales of $526 million in the first nine months of 2011, up 3% from the year-ago comparable period.
During 2011, the North American back-to-school season finished in line with expectations, but slightly lower than 2010. Sales volume of time management products were affected due to unfavorable timing of shipments.
However, higher sales at Tilibra, the segment's Brazilian operation, helped offset some of the North American volume decline. Tilibra also benefited from higher volume from a shift of Brazilian back-to-school volume into 2011 from 2010.
Consumer & Office Products booked segment profit of $93 million in the first nine months of 2011 compared with $84 million in the comparable year-ago period. Improved pricing and product mix, higher productivity, and favorable foreign currency exchange were partially offset by $18 million of input cost inflation of certain raw materials, freight and other items along with lower volume.
Following a strategic review of its businesses, MeadWestvaco has decided to exit unprofitable operations and product lines to refocus on growth markets. MeadWestvaco plans to concentrate on and grow its Packaging business and has targeted the food, beverage, healthcare, personal care, home and garden and tobacco markets for growth.
In February, 2011, the company completed the sale of its envelope products business for cash proceeds of $55 million and at September-end 2010, the company finalized the sale of its media and entertainment packaging business for cash proceeds of $68 million.
The current transaction will further improve MeadWestvaco’s overall growth profile and help the company focus on opportunities in large and growing global packaging markets. The proceeds from the deal will also boost its core businesses.
Additionally, MeadWestvaco shareholders will have a majority ownership in ACCO, which in turn will gain from the addition of MeadWestvaco’s brands to its existing portfolio and a wider global footprint. We also like MeadWestvaco’s increasing investments in emerging markets.
However, ongoing macro-economic challenges in developed markets and the impact on consumer demand, higher costs for certain raw materials and freight remain concerns. The shares of MeadWestvaco currently maintain a Zacks #3 Rank (Hold rating) over the short term.
Richmond, Virginia-based MeadWestvaco Corporation provides solutions to companies operating in the health care, beauty and personal care, food, beverage, home and garden, tobacco, and commercial print industry. The company’s segments include Packaging Resource, Consumer Solutions, Consumer & Office Products, Specialty Chemicals, Community Development and Land Management. It competes withInternational Paper Co. ( IP - Analyst Report ) , Republic Services, Inc. ( RSG - Analyst Report ) andWeyerhaeuser Co. ( WY - Analyst Report ) .
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