Shares of Buckeye Technologies (BKI) rose some 26.5% in Wednesday's trading session. The producer of cellulose-based specialty products announced that it would be taken private by Georgia-Pacific LLC in a $1.5 billion deal. Investors stand to receive a nice premium for their investment, but lose a strong value creating stock in their investment portfolio.
Buckeye Technologies announced that it has agreed to sell itself to privately-held Georgia-Pacific. Shareholders stand to receive $37.50 per share in cash, valuing the company including its debt at $1.5 billion. The proposed deal represents a 29% premium over the average stock price of Buckeye over the past week.
Buckeye's 1,200 employees will become part of Georgia-Pacific. The manufacturer of building products, packaging, cellulose and chemical products already employs some 35,000 workers across the globe.
CEO and Chairman John Crowe commented on the deal, "This transaction enables our stockholders to realize significant value, while also representing an important next step in the growth of Buckeye Technologies. We are pleased that Georgia-Pacific recognizes the significant value of our company's special and unique assets, talented employees, and research and development capabilities."
In 2012, Buckeye generated annual revenues of $894.9 million on which the company net earned $90.0 million. The $1.5 billion deal, which includes a modest net debt position of around $40 million, values the company around 1.7 times annual revenues and 16-17 times annual earnings.
The deal is subject to normal closing conditions including regulatory approval and a tender of at least 75% of Buckeye's shares outstanding.
Buckeye Technologies ended its second quarter with $58.5 million in cash and equivalents. The company operates with $99.3 million in long term debt, for a modest net debt position of almost $41 million.
Revenues for the first six months of the year came in at $401.3 million, down 11.4% on the year as the company suffered from a steam drum failure outage. Net income for the period came in at $42.4 million.
Buckeye paid its shareholders a quarterly dividend of $0.09 per share, for an annual dividend yield of 1.0%.
Some Historical Perspective
Long term holders of Buckeye will undoubtedly be happy with the offer for the company. Over the past decade, shares steadily advanced from $5 in 2003 to highs around $18 in 2007.
Shares fell to lows of $2 during the recession in 2009 but ever since have shown an impressive recovery, peaking around $37 at the start of 2012. Shares corrected to lows of $25 later that year, but the $37.5 offer values the company around its all time highs.
Between 2009 and 2012, Buckeye Technologies has expanded its annual revenues by a cumulative 20% to $895 million. The company's profitability recovered from a disastrous 2009, as Buckeye reported stable profits over the past few years.
For Georgia-Pacific, which has been acquired by the Koch family which controls Koch Industries for $21 billion in 2005, it has been the second deal in a short time. In December last year, Georgia-Pacific announced the acquisition of the building products business from International Paper in a $750 million deal. With the acquisition of Buckeye, Georgia-Pacific is expanding its manufacturing base in the US and Germany in the market for wood and cotton nonwoven materials.
With a 26% premium being offered for Buckeye's shares, which happen to trade at fresh all time highs, there are few reasons for selling shareholders to complain.
Yet long term holders could be disappointed to some degree. Buckeye's investors will no longer own part of a strong value-creating company. In fact, they stand to receive a bag of cash and a decent premium for their holdings in return, leaving them wondering were to invest their proceeds into. While the premium is fair, the timing of Georgia-Pacific is even better after the significant pullback in Buckeye's shares over the past year.
While Buckeye has specialized operations and has a long term history of creating shareholder value, as the competitive barriers to replicate its success are high, shareholders should be happy with the offer and take it.