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MeadWestvaco Gains on Accelerated Buyback

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Shares of packaging solutions provider MeadWestvaco Corporation rose around 3% since the company announced an accelerated share repurchase (ASR) agreement on Feb 6.

As per the agreement with BofA Merrill Lynch, a unit of Bank of America Corporation (BAC - Free Report) and Goldman, Sachs & Co, which is an entity of The Goldman Sachs Group, Inc. (GS - Free Report) , MeadWestvaco will purchase $300 million of outstanding shares, out of which 7.5 million shares will be received and retired immediately. The exact number of shares repurchased and retired by the company will be determined on Jun 30, 2014.

The $300 million ASR is part of MeadWestvaco’s previously announced plan to return $700 million of sale proceeds from the divestiture of U.S. forestlands to Plum Creek Timber Co. Inc. on Dec 2013. As part of this plan, the company also declared the disbursement of around $175 million or $1.00 per share in the form of a special dividend to be paid along with the regular quarterly dividend in March.

In addition to the ASR, the company expects to use $94 million to buy back shares from the open market. Repurchases under this program are anticipated to be complete by the end of second-quarter 2014. Apart from these, MeadWestvaco repurchased and retired approximately 3.75 million outstanding shares for $131 million from the forestland asset sale.

MeadWestvaco reported fourth-quarter 2013 adjusted earnings of 29 cents per share, in a turnaround to the year-ago quarter loss of 5 cents. Despite sluggish consumer demand, growth across targeted packaging and specialty chemicals end markets, along with improved pricing and operational performance led to the year-over-year rise.

However, though MeadWestvaco did not provide any specific guidance for fiscal 2014 it expects higher earnings in comparison to fiscal 2013. The company expects the results to be driven by continuous volume improvement across its targeted paperboard packaging and high value dispensing, pine chemicals and carbon technologies solutions, along with increased price realizations across key consumer and industrial paperboard packaging grades.

Furthermore, improved productivity in the major domestic mills and significant productivity benefits from higher production in the Brazilian operation and savings from its overhead reduction initiative will boost earnings. However, the eurozone crisis remains a headwind.

Richmond, Virginia-based MeadWestvaco is a global packaging company that provides innovative solutions to the world’s most admired brands in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco and agricultural industries. The company also produces specialty chemicals for automotive, energy and infrastructure industries.
At present, MeadWestvaco has a short-term Zacks Rank #3 (Hold).

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