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Sealed Air Divests Diversey for $3.2B to Simplify Structure

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Sealed Air Corporation (SEE - Free Report) has completed the previously announced sale of its Diversey Care division along with the food hygiene and cleaning business within its Food Care division to Boston-based private equity firm, Bain Capital Private Equity for $3.2 billion. This divestiture marks a significant milestone in Sealed Air’s transformation and will aid it to focus on profitable growth strategy, including continued investment in core business. The proceeds will be used to pay down debt, buy back shares and fund growth initiatives.
 
The Diversey business came under the Sealed Air umbrella following its acquisition in 2011 for $4.3 billion. With the buyout, the company had marked its foray in to commercial cleaning and sanitation. Sealed Air which was well known for the Bubble Wrap brand started offering new products like disinfectants and cleaning solutions. Diversey Care contributed around 29% of the revenues in 2016. It provides solutions for facility hygiene, food safety and security in food service operations, and infection control to customers globally.
 
New Structure will Enable Focus on Core Business
 
In October 2016, Sealed Air announced plan to pursue the tax-free spin-off of Diversey and the food hygiene and cleaning business. Per the deal, it would create two independent companies. One of the entities’ will be “New Diversey”, which is collectively the business being sold., The other entity will be New Sealed Air consisting of the remaining Sealed Air business, a simpler entity focusing on Food Care, Product Care, and Medical Packaging under the leadership of current CEO, Jerome Peribere.
 
New Diversey will focus on Diversey Care and Hygiene Solutions with Dr. Ilham Kadri at the helm. It will be a leading hygiene and cleaning solutions company that integrates chemicals, floor care machines, tools and equipment, with a wide range of technology based value-added services, food safety services along with water and energy management.  The company will employ approximately 8,600 people worldwide.
 
Sealed Air will utilize the proceeds to cut down debt levels and maintain net leverage ratio in the range of 3.5 to 4.0 times. It will also repurchase shares, and fund core growth initiatives, including completing potential complementary acquisitions to its Food Care and Product Care divisions.
 
Going Forward
 
Sealed Air’s top-line will be supported by improved demand for core product portfolio, recently-introduced innovations, and accelerated growth in the global protein market along with the e-Commerce sector. It will also benefit from the divestiture of Diversey business. However, costs associated with the Diversey Care operations and various restructuring actions underway will strain margins. The company’s results in APAC will be impacted as the Australia /New Zealand region rebuilds cattle herds and ban on Brazil beef exports will impact Latin American volumes.


 
Sealed Air has underperformed the industry in the past year. Its shares have dipped 8.5% while the industry witnessed a gain of 4.7%.
 
Sealed Air currently carries a Zacks Rank #3 (Hold).
 
Stocks to Consider
 
Some better-ranked stocks in the industrial product space include Caterpillar Inc. (CAT - Free Report) , AGCO Corporation (AGCO - Free Report) and Komatsu Ltd. (KMTUY - Free Report) . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Caterpillar has expected long-term earnings growth rate of 9.5%.
 
AGCO has expected long-term earnings growth rate of 13.5%.
 
Komatsu has expected long-term earnings growth rate of 12.7%.
 
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