Swedish paper products giant Svenska Cellulosa Aktiebolaget plans to expand in plastics and other protective packaging by acquiring Tuscarora Inc. of New Brighton, Pa.
SCA will use the purchased business as the platform for a new protective packaging business with annual sales of about $450 million based on a variety of plastics and paper composites. SCA will gain major entry into the U.S. market and bolster its European packaging stake while Tuscarora's operations will gain from more European and Asian exposure.
The Tuscarora bid is part of a major SCA thrust into the United States. Coinciding with its Tuscarora plan, SCA has bought paper tissue operations from Georgia-Pacific Corp.
SCA said it will offer $21.50 a share for Tuscarora in a deal worth $284 million, including the assumption of $54 million in debt after the acquisition. Tuscarora's board will ask shareholders to approve the offer at a meeting that probably will take place in April, according to Brian Mullins, Tuscarora's vice president and chief financial officer.
So far, shareholders with about 15 percent of Tuscarara's shares have agreed to vote for the deal. SCA does not own any of Tuscarora yet, Mullins said in a Jan. 23 telephone interview.
Tuscarora's 36 protective packaging plants in the United States, Mexico, United Kingdom and Ireland generated sales last year of about $285 million.
Those operations will make up most of SCA's new protective packaging unit.
Tuscarora converts molded and die-cut foam plastics, thermoformed plastics, paperboard and wood into packaging for 3,600 customers in industries such as telecommunications, vehicles, consumer electronics, appliances and pharmaceuticals. SCA estimates paper fibers account for about 20 percent of Tuscarora's packing material use.
SCA does about $150 million a year worth of specialty protective packaging business similar to Tuscarora's. Two-thirds of that is in Europe and the rest is in Asia, estimates Colin Williams, president of SCA Packaging International BV of Brussels, Belgium.
In Europe, SCA molds expanded polystyrene at plants in Sweden and Denmark and buys EPS shapes and expanded polypropylene from outside sources. It uses the foamed plastics in some of its corrugated and paperboard packaging plants to create multimaterial, specialty packaging for electronics and other industries.
SCA runs more than 60 paper-based packaging plants in Europe. Williams claimed it is the fifth-largest EPS converter in Europe.
In Asia, SCA is a minority partner in Central Package Group of Singapore but soon will become majority shareholder, Williams said in a telephone interview from Brussels. Central Package runs about 20 multicomponent packaging plants and molds EPS in Malaysia and Singapore.
Mullins said his firm has had an alliance with Central Package that made Tuscarora familiar with SCA.
Tuscarora's thermoforming expertise will be a new technology for SCA. Tuscarora's thermoforming division had sales of about $14 million for the year ended Aug. 31, 1999.
Overall, SCA Packaging's sales are about $3 billion a year, including all types, most of which are based on paper products.
Tuscarora has been growing internally and through acquisition. Its latest purchase was Technapack Inc., a plastic foam and multimaterial packaging producer in Hillsboro, Ore. SCA estimated Tuscarora has had an operating margin before depreciation of about 17 percent during the past six years.
John O'Leary, Tuscarora chairman, president and chief executive officer, said the SCA/Tuscarora merger will increase technical depth and global reach of each firm's businesses.
Sverker Martin-Lof, SCA president and CEO, said in a news release that the purchase "provides access to the important North American market and to Tuscarora's blue-chip customers." SCA estimated the U.S. market for special protective packaging at about $1.25 billion annually. It said markets in Europe and Asia are less sophisticated.
John O'Leary has a long-term contract to be global business manager for the new specialty packaging business. His brother David O'Leary will become senior manager of North American operations. Williams will head the packaging and tissue operations in North America as they become integrated within SCA.
Stockholm-based SCA has annual sales of $7 billion in paper, packaging and hygiene products. Its deal with Georgia-Pacific greatly boosts its U.S. stake in commercial and institutional tissue products.
SCA said its proposed purchase price for Tuscarora equals 6.2 times operating income before depreciation for the most recent 12-month period.
Tuscarora's stock price on Nasdaq increased about 50 percent to $20.94 after the bid was announced Jan. 22.