Sealed Air adds cleaning products with $2.9 billion Diversey buy

BANGALORE (Reuters) – Sealed Air Corp, best known for its Bubble Wrap and Jiffy envelopes, is heading into the $40 billion chemical cleaning and hygiene industry with the acquisition of privately held Diversey Holdings for $2.9 billion.

The cash and stock deal will help Sealed Air expand beyond specialty packaging and give it access to Diversey’s markets in over 60 countries spanning the globe.

“The packaging industry is reasonably mature and we were looking at opportunities to grow in areas that are as close to the space we’re in, close to the technology we understand and to the customers we serve,” CEO William Hickey told Reuters.

The two companies have significant customer overlap — including Wal-Mart Stores Inc, Nestle, Tyson Foods and YUM Brands — making it easier to sell cleaning products to existing Sealed Air customers, Hickey said.

The deal comes just weeks after Silgan Holdings Inc, which makes cans for Campbell’s Soup, bought smaller rival Graham Packaging for $1.3 billion.

Sealed Air shares last traded down 5 percent on the New York Stock Exchange on Wednesday, as investors queried the strategic fit of the acquisition.

Robert W. Baird analyst Ghansham Panjabi said people were asking whether this was the right move — to enter new end-markets — rather than to expand by buying another packaging company.

The deal also effectively kills speculation that Sealed Air itself was a potential acquisition target, Panjabi said.

In a fragmented, global cleaning products market, leader Ecolab Inc and Diversey have a combined 20 percent share.

The Racine, Wisconsin-based Johnson family — which also has stakes in home cleaning products such as Mr. Muscle and Baygon — owns about half of Diversey, with private equity firm Clayton Dubilier & Rice Inc holding 46 percent. Unilever owns 4 percent.

Sealed Air, which competes with Sonoco Products Co and Bemis Co, had revenue of $4.5 billion in 2010. It had $696 million in cash and cash equivalents and debt of $1.41 billion, as of end-March.

Diversey, which makes commercial cleaning, hygiene, pest control and food sanitation products, had 2010 revenue of $3.1 billion.

DEAL DETAILS

Diversey shareholders will be paid $2.1 billion in cash and 31.7 million Sealed Air common shares, giving them a 15 percent stake in Sealed Air once the deal is completed.

The deal, expected to close this year, should add to earnings in the first full year following completion, Sealed Air said.

It will fund the purchase from its cash reserves and debt financing provided by Citi, one of its financial advisers on the deal.

Diversey had total debt of $1.53 billion as of April 1, according to a company filing.

Blackstone Advisory Partners also acted as financial adviser to Sealed Air. Lazard advised the Johnson family.

Shares of Sealed Air, valued at a little over $4 billion, had risen less than 1 percent so far this year, but hit a 43-month high in February. The sector sub-index is up 4.5 percent year-to-date.