Tenneco Sells Containerboard Business to Madison Dearborn Partners
Tenneco has agreed to sell its containerboard business to Madison Dearborn Partners for $2.2 billion as the first step in its strategic restructuring and the repositioning of its automotive and packaging businesses. Tenneco will receive $2 billion in cash and retain a 45% equity ownership in the business valued at $200 million. The transaction, expected to be completed in the second quarter, will create a new stand-alone entity called Packaging Corp. of America (PCA).
Assets included in the sale are Tenneco's two linerboard and two corrugated medium mills, 67 converting plants, and almost one million acres of timberland. The transaction does not include Tenneco's folding carton business. Tenneco's mills have the capacity to produce 1.4 million tons of linerboard and 800,000 tons of corrugating medium annually, at its major mills located in Counce, TN, Filer City, MI, Tomahawk, WI, and Valdosta, GA. The company's containerboard business employs 7,500 people.
Tenneco is one of the industry's most highly integrated producers of containerboard and packaging products, converting about 80% of production to finished products through a national network of converting facilities. Its mills manufacture a range of linerboard and corrugating medium, including high-performance and lightweight grades.
About 85% of the Tenneco mill system's production ranks in the industry's top cost quartile. Each mill is strategically located near high-quality wood and secondary fiber supplies and metropolitan or export markets. The company's containerboard business had 1998 net revenues of $1.5 billion and holds a 6% market share.
"The sale of our containerboard business will achieve excellent value for our shareowners," said Dana Mead, Tenneco's chairman and CEO. "The immediate cash proceeds of this action will enable Tenneco to reduce its debt by $2 billion, thereby enabling the creation of a number of financially attractive strategic alternatives for the automotive and specialty packaging businesses. The partial ownership, which will be retained for a time, will also enable us to benefit from the increasing valuation of the business as industry fundamentals continue to improve."
Madison Dearborn Partners Inc., headquartered in Chicago, IL, is a leading private equity investment firm with approximately $4 billion of assets under management. MDP focuses on investments in several specific industries including natural resources, communications, consumer, health care, and financial services.
"Madison Dearborn Partners is delighted to enter into this transaction with Tenneco. Through strong leadership, Tenneco has built its containerboard business into a market leader with world-class facilities and a highly talented and experienced management team. This combination is consistent with MDP's investment objective of acquiring industry leaders in partnership with outstanding and committed management teams," said Samuel Mencoff, MDP's managing director. He added that "this investment builds on MDP's previous experience in the paper and forest products industry, which includes the 1993 acquisition of Buckeye Technologies Inc. from the Procter & Gamble Co."
The new company, headquartered in Lake Forest, IL, will be headed by Paul Stecko, who will be its chairman and CEO. "We have worked diligently in the past five years to make these assets among the best in the industry," said Stecko. "Now with our new partners and the team we've assembled, we are well positioned to build increased value as the containerboard market improves." Once the sale is complete, Stecko will resign his position as president and CEO of Tenneco. He will remain as a member of Tenneco's board of directors.
Tenneco's network of 67 converting plants produced approximately 24 billion square feet of corrugated products and consumed 1.1 million tons of linerboard and 500,000 tons of corrugating medium in 1998.
Tenneco has created value in both its mill and converting operations through its signature cost of quality programs and by making strategic capital investments. As a result of these cost of quality initiatives and investments, $80 million in costs has been removed from the company's mill operations and $30 million from its converting operations since 1997.