Why Box Plants Must Close - Packaging-Online

The potential cost savings that can be realized via box plant closures presents a compelling case for containerboard consolidations, says Edings Thibault, paper industry analyst for Morgan Stanley, New York City. He believes it could add as much as $1 billion, or 30 percent, to the bottom lines of major producers.

"We believe the North American containerboard industry is on the brink of a period of major consolidation," he writes in a recent report. He says that three key catalysts for the coming "Big Box Era" are:

•Other merger and acquisition deals have been well received by the market. Recent acquirers like Domtar and Rock-Tenn have seen their stock prices move higher in the wake of a deal announcement;
•Profits, while far from peak levels, have rebounded, which historically has given management teams more confidence to do deals; and
•The probable break-up of Temple-Inland and Weyerhaeuser.

"Our analysis of the box plant networks of the major producers highlights the significant geographic overlap between these networks," says Thibault. "Given the close geographic proximity of the major producers, we think the industry consolidation we foresee could lead to the closure of as much as 20 percent of the combined companies' box plant footprint. At an estimated $10 million of savings per plant closure, that could add as much as $1 billion (or 30 percent) to the bottom line of containerboard producers. The potential for a billion dollars of cost savings reinforces our view that consolidation in the containerboard industry should be seen as a strategic imperative."