Industry Reports

Deutsche Bank Reports Summaries

080111 Deutsche Bank Report - Rock-Tenn Surprise

Deutsche Bank - Equity Research

Rock-Tenn {Ticker: RKT, Closing Price: USD 23.65, Target Price: USD 40.00, Recommendation: Buy}.

Rock-Tenn has announced the acquisition of Southern Container for $851MM in cash and assumption of $142MM in debt.   RKT claims that the deals values Southern at 6.9x LTM pro forma EBITDA.  The transaction marks something of a shift in emphasis as RKT's presence in containerboard & corrugated packaging was relatively small with one modest-sized containerboard machine.  The deal will add nearly 1MM tons of old corrugated container exposure to RKT's portfolio.  Other key issues for investors are cyclical timing and synergy opportunities.

Headquartered on Long Island, Southern is one of the largest privately-held containerboard and corrugated container producers in North America .  Southern owns the lion's share of the equity in the 800,000/tpy Solvay Paperboard mill in Syracuse, NY, a 100% recycled facility. The Solvay mill is among the largest and most modern containerboard mills in NA with 4 machines, all built in the past 20 yrs.  Southern's box plants are scattered along the east coast.  Southern has enjoyed a reputation for being tightly-run from a cost standpoint, leading us to take a careful look at any synergy targets. 

Rock-Tenn has been making noise about following its highly successful acquisition of Gulf States Paper with another mill- oriented acquisition.  We had incorrectly assumed that such an acquisition would be in its core boxboard/folding carton markets.