Tenneco Sells Containerboard Business to Madison Dearborn Partners
26 January 1999
Tenneco Sells Containerboard Business to Madison Dearborn Partners for $2.2 Billion as First Step in Strategic Restructuring
GREENWICH, Conn.--Jan. 26, 1999--Tenneco today announced it has reached a definitive agreement 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 percent equity ownership in the business valued at $200 million."The sale of our containerboard business will achieve excellent value for our shareowners," said Dana G. Mead, Tenneco's chairman and chief executive officer. "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. (MDP), headquartered in Chicago, Ill., 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 M. Mencoff, MDP's Managing Director. "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 Company."
The transaction, which is expected to be completed in the second quarter of 1999, will create a new stand-alone entity called Packaging Corporation of America (PCA). The new company, headquartered in Lake Forest, Ill., will be headed by Paul T. Stecko who will be its chairman and chief executive officer.
"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 chief operating officer of Tenneco. He will remain as a member of Tenneco's Board of Directors.
The assets included in the sale are Tenneco's two linerboard and two 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. Its containerboard business had 1998 net revenues of $1.5 billion and holds a six percent market share.
The new company will be capitalized with bank debt, debentures, an equity contribution from MDP, and equity retained by Tenneco. Financing will be provided by J.P. Morgan Securities, Inc. and BT Alex.Brown, Inc., MDP's financial advisors in the transaction. Tenneco's financial advisor for the transaction is Goldman, Sachs & Co.
Tenneco's containerboard business is one of the industry's most highly integrated producers of containerboard and packaging products, converting about 80 percent of production to finished products through a national network of converting facilities.
Tenneco's mills manufacture a range of linerboard and corrugating medium, including high-performance and lightweight grades. About 85 percent 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.
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 Tenneco's mill operations and $30 million from its converting operations since 1997.
Tenneco's containerboard business employs 7,500 people. Its major mills are located in Counce, Tenn., Filer City, Mich., Tomahawk, Wis., and Valdosta, Ga.
Tenneco is a $7.6 billion global manufacturing company headquartered in Greenwich, Conn., with 50,000 employees worldwide. Tenneco Automotive is one of the world's largest producers and marketers of ride control and exhaust systems and products, which are sold under the Monroe and Walker global brand names. Among its products are Sensa-Trac shocks and struts, Rancho shock absorbers, Walker Quiet-Flow mufflers and DynoMax performance exhaust products, and Monroe Clevite vibration control components. Tenneco Packaging is among the world's leading and most diversified packaging companies. Among its products are Hefty trash bags, Hefty OneZip and Baggies food storage bags, E-Z Foil single-use aluminum cookware and Hexacomb paper honeycomb products.
For more information about Tenneco, visit the Tenneco website at http://www.tenneco.com.