Cascades selling Canadian boxboard unit to Graphic Packaging for $44.9 million

MONTREAL – Cascades (TSX:CAS) is selling its North American boxboard operations known as Norampac to a U.S. company in order to pay down debt and focus on larger, more profitable operations.

The $44.9-million deal with Graphic Packaging Holding Co. (NYSE:GPK) involves five plants, two each in Quebec and Ontario and one in Manitoba, which together employ 670 workers.

The Quebec-based recycled paper and packaging company said it put the assets up for sale a few months ago after deciding to focus on tissue, recycling and other packaging grades that it believes have better long-term prospects.

“We believe that, long-term, those three sectors, including boxboard in Europe (which is not part of the transaction), are the key sectors where we want to reinvest,” said Marc-Andre Depin, Norampac’s president and CEO.

“That’s why we decided that those five units that are part of the folding carton boxboard division in North America would be let go,” he said in an interview, adding that the decision to sell the division was strategic and not based on its profitability or the market.

The mills being sold generated about $6 million in EBITDA over the last 12 months and $230 million in annual revenues or about six per cent of Cascades’ overall $3.8 billion of topline.

The affected operations are: a mill in East Angus, Que., and another in Jonquiere, Que., both acquired by Cascades in the early 1980s, plants in Mississauga and Cobourg, Ont., which the company has had since the early 1990s, and a Winnipeg plant acquired in 2001.

Depin said Norampac, operating under Graphic, will remain in business as the largest producer of corrugated board in Canada and the sixth largest in North America.

Graphic Packaging, which has its head office in Atlanta, said the acquisition from Cascades’ Norampac division will extend the Georgia-based company’s customer reach in Canada by establishing a manufacturing presence.

“Significant synergies” are expected over the next 24 months but the company did not say how they would be achieved.

Depin said Cascades isn’t aware of any changes Graphich plans to make to Norampac’s workforce.

“For the 670 employees that are involved now there’s nothing special that we’ve been told will happen to them,” he said.

The proposed sale, which stems from a formal bidding process, requires regulatory review and is expected to close in the first quarter of 2015.

Leon Aghazarian of National Bank Financial said the sale of the lower-margin operations allows Cascades to sharpen its focus on core operations. Earlier this year, it sold its fine papers activities for $39.5 million and closed its kraft paper operations.

The analyst has maintained his $9 per share price target but revised his 2015 EBITDA margin forecast to 10.2 per cent from 9.7 per cent as a result of the sale.

The company, based in Kingsey Falls, Que., is a leader in recovering recyclable material for packaging and tissue paper. It employs nearly 12,000 people at 100 production units in North America and Europe.

On the Toronto Stock Exchange, Cascades shares were down six cents at $6.83 Thursday afternoon.

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