Sealed Air Corporation (SEE) just completed its acquisition of Diversey Holdings, Inc in October of 2011. In a press release Sealed Air said, "the acquisition brings together two complementary, leading global organizations…" This combination will allow Sealed Air to provide more products to each customer and maximize shared distribution efficiencies. For example, if customer X bought from Diversey and Bemis Company (BMS), Sealed Air could now compete by offering that customer Diversey products and replacing Bemis products with their own. It could offer a small discount and the convenience to customers of only having to deal with one supplier.
In 2010, prior to the acquisition, revenues were $4.5 billion for Sealed Air and approximately $3.1 billion for Diversey. Sealed Air's stock was around $24/share when the intent to acquire was announced; it dropped to just below $16/share in October when the deal closed, and is now on the way back up. In 2010 Sealed Air had $1.4 billion in debt and after costs from the deal and assumption of debt it now has just over $5 billion in long term debt. Sealed Air notes in another press release that cost synergies in 2012 are expected to be $50 million doubling to $100 million for 2013. End of year for 2011 it had free cash flow of $354 million and retired some debt early. It expects free cash flow to grow $100 million for 2012.
International sales are responsible for 59% of total sales while only 41% are from the United States. A major concern I have with that is foreign currency exchange rates. It notes several times throughout its annual report that same concern. Another concern is that food packaging is a product tied to innovation, technology, and patents. Overnight a competitor could release a product that is more effective, cheaper, or better than Sealed Air's products and steal a large percentage of market share.
Bemis Company and Sonoco Products (SON) are two of Sealed Air's competitors. Each has a market cap in the $3 billion range. Of the three, Sealed Air has the best gross and operating margins and I see those increasing even more with the synergies from the Diversey acquisition. Bemis just had four of its packages win six awards. One of them I got for the first time at a fast food restaurant last summer, and recently I saw it in my local grocer. It is the new Heinz (HNZ) Dip & Squeeze; according to the article this is the "first ketchup package makeover in 42 years." While this package isn't likely to put another company out of business, if a company had a bunch of innovations it could start to slowly erode at the market share of other companies.
While Sealed Air's products serve a broader international market and non-durable goods, Sonoco has about 45% of revenues tied to durable goods and well over half that comes from the United States. With the economy as it has been lately, durable goods orders were lower and not growing as fast.
Sealed Air offers the smallest dividend of the three at $0.52 or a 2.64% yield. I think the stock made a climb in January on news of the Diversey deal and has flattened out while investors await more results. A big factor will be if the cost savings are coming in as planned or not. I think of the three it has the best upside and could grow to $25/share by the end of 2012.