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AHP Buy Bodes Well for Domtar

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In a bid to expand its personal care business, Domtar Corporation (UFS - Free Report) recently signed a deal to acquire Associated Hygienic Products (AHP) from DSG International for $272 million. The deal is expected to close by second quarter 2013.

AHP manufactures infant diapers in the U.S. and has a strong presence in retail distribution channels. The company operates two manufacturing facilities in Del., OH and Waco, TX. It has a distribution center in Duluth, GA.

The successful integration of AHP will add high-quality products to Domtar’s product range. Moreover, the acquisition is a big boost to Domtar’s Personal Care divison, whose annualized earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to cross $200 million by 2017. The acquisition also complements Domtar’s plans of having annualized EBITDA of $300-$500 million from growing businesses over the next four years.

The acquisition is a strategic move by the company to expand its North American footprint with an increasing demand for high-quality infant diapers in the region. The acquisition is expected to provide annualized synergies of $10 million within two years from lower purchasing costs, reduced general and administrative costs, and sharing of best practices in manufacturing and product development.

Domtar designs, manufactures, markets, and distributes communication papers, specialty and packaging papers, and adult incontinence products globally. In the last reported quarter, Personal Care segment reported revenues of $111 million, up from $70 million in the year-ago quarter.

Domtar currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look are Resolute Forest Products Inc with a Zacks Rank #1 (Strong Buy) and PH Glatfelter Co. (GLT - Free Report) and Weyerhaeuser Co. (WY - Free Report) , each carrying Zacks Rank #2 (Buy).


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