Bloomberg News

Sealed Air Sees ‘Trifecta’ in $2.9 Billion Diversey Purchase

June 01, 2011

(Updates with closing share price in 10th paragraph.)

June 1 (Bloomberg) -- Sealed Air Corp. Chief Executive Officer William Hickey agreed to buy Diversey Holdings Inc. for $2.9 billion to add sales to emerging-market food-processors concerned about product safety.

“The old hockey adage is go where the puck is going to be,” Hickey, 66, said today in a telephone interview.

Sealed Air, a maker of food packaging, chose Diversey because it’s the No. 1 player in food-safety related products in emerging markets, Hickey said. Expansion in emerging markets and taking advantage of demand for prevention of food contamination are key parts of Sealed Air’s strategy.

“This to me was kind of a trifecta, or a hat trick, so to speak, in that it gave us scale in a business we identified as attractive, it gave us the footprint which we thought was attractive, which is in the right space in the right parts of the world,” he said. “I could check all the boxes and say this is the right thing to do for the right reasons.”

Sealed Air, the maker of Cryovac food packaging and Bubble Wrap, agreed to pay Diversey shareholders $2.1 billion in cash and 31.7 million shares of Sealed Air common stock valued at $25.68 as of yesterday’s close. The purchase also includes $1.4 billion of net debt to be refinanced, for a total cost of $4.3 billion.

Second-Biggest Purchase

The acquisition is the second largest in company history, behind the $4.8 billion purchase of the Cryovac food-packaging business in 1998 from W.R. Grace & Co., Hickey said.

The deal will be completed in 2011 and is expected to add to earnings in the first full year after the closing, the companies said today in a statement.

The purchase of Sturtevant, Wisconsin-based Diversey is the largest of at least 28 acquisitions of soap and cleaning preparation companies for which financial terms were disclosed in the past five years, according to data compiled by Bloomberg.

Sealed Air will add cleaning and sanitizing detergents, gels and foam, plus electronic dispensers to customers in the food and beverage, health-care and lodging industries. Diversey’s sales last year were $3.1 billion, and it employs about 10,000.

Sealed Air fell $1.71, or 6.7 percent, to $23.89 at 4:15 p.m. in New York Stock Exchange composite trading as broader U.S. indexes tumbled. It was the biggest one-day decline for Sealed Air since July 2009.

Credit-Default Swaps

Credit-default swaps on the company’s debt jumped 90.6 basis points to 236 basis points, the highest level since Oct. 15, according to data provider CMA. The contracts soared as high as 237.3 basis points in October amid speculation Sealed Air could be the subject of a leveraged buyout.

Citigroup Inc. has committed to structure $4.5 billion of financing, and Sealed Air aims to “operate for the long term with an investment-grade profile,” Chief Financial Officer David Kelsey said on a conference call.

Moody’s Investors Service ranks Sealed Air’s debt Baa3, the lowest level of investment grade, and Standard & Poor’s rates the company BB+, the highest rung of junk, according to data compiled by Bloomberg.

‘Slight Negative’

The $2.1 billion to be paid in cash and shares “is a slight negative for credit quality,” according to Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania.

Sealed Air posted 2010 sales of $4.5 billion, and the Elmwood Park, New Jersey-based company has 16,100 workers and 114 manufacturing facilities, according to a presentation on the company’s website. In addition to Cryovac food packaging and Bubble Wrap, Sealed Air makes Jiffy protective mailers and medical supplies such as sterile sealed packaging.

Closely held Diversey is controlled by descendants of Samuel Curtis Johnson, who started a flooring company in the 1880s that became S.C. Johnson & Son Inc., the maker of Pledge furniture polish, Windex glass cleaner and Glade air fresheners. Clayton, Dubilier & Rice LLC also has a “significant ownership stake” in Diversey, according to its website.

Citi and Blackstone Advisory Partners LP were financial advisers to Sealed Air, and Simpson Thacher & Bartlett LLP was legal adviser.

Goldman Sachs Group Inc. acted as financial adviser to Diversey and Skadden, Arps, Slate, Meagher & Flom was legal adviser. Lazard advised the Johnson family, and Debevoise & Plimpton assisted Clayton, Dubilier & Rice.

--With assistance from Mary Childs in New York and Ed Dufner in Dallas. Editors: James Langford, Niamh Ring

To contact the reporters on this story: Will Daley in New York at wdaley2@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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