Richmond has its first mega merger of 2015.
Downtown-based Fortune 500 MeadWestvaco announced a deal Monday morning to combine with Rock-Tenn Co. of Georgia in a marriage that would create a packaging giant with a combined $15.7 billion in annual revenue.
The companies will take on a new name and, once combined, will remain headquartered in MWV’s riverfront tower at 501 South 5th St. The stock-for-stock deal will give MWV shareholders control of about 51 percent of the combined company and Rock-Tenn stockholders will control the remaining 49 percent.
Should it close as expected in the second quarter, Richmond would then be home to the country’s second-largest packaging company behind only International Paper.
The merger would also mark the end of a family legacy. Leading the new company will be Steven Voorhees, currently Rock-Tenn’s CEO. MWV CEO John Luke Jr. will become a non-executive chairman of the new firm.
That will be the first time in the history of the various iterations of what is now MeadWestvaco that a member of the Luke family is not a top executive at the company.
The family’s history with the company dates back to the late 1800s when John Luke Jr.’s great-great-grandfather William Luke founded Piedmont Pulp & Paper Co. That company later became Westvaco, which then combined with Mead Corp. to form the current firm in 2002.
According to a Bloomberg report, a Luke has run the company for six generations.
The company moved its headquarters from Connecticut to the Richmond area in 2006, ultimately landing at its 310,000-square-foot home base on the river in 2010.
Today MWV has about 800 employees locally and 15,000 worldwide. It produced about $5.5 billion in revenue in 2013. One side of the company makes packaging for all sorts of consumer goods. It also has a specialty chemicals operation used by industrial firms.
In addition to its downtown headquarters, the company has a larger R&D facility near the airport, other smaller offices in the area and more than 100 facilities around the world.
One of its largest U.S. facilities is a paper mill in Covington, Virginia – about 175 miles west of Richmond – with 1,500 employees.
Rock-Tenn is also no stranger to Richmond. The company has a box making plant near the airport at 5710 South Laburnum Ave., as well as mills in West Point and Hopewell.
“We’re going to end up with a significant presence in both places,” said MWV spokesperson Tucker McNeil.
It’s too soon to say how large a presence the combined firms will have in Richmond after the deal, because transactions of this size typically include the elimination of duplicate jobs, particularly back-office positions.
The companies said on Monday that they are aiming for $300 million in savings over the first three years by eliminating overlapping costs.
“It’s too early to tell what’s going to happen when these two big companies get together,” McNeil said.
MWV has been in restructuring mode over the last year or so. It cut hundreds of jobs early last year, including about 125 local workers. And earlier this month, it announced a plan to spin off its chemicals business into a separate publicly traded company. The planned spin-off is still in the works.
Pension costs were also a driver of the deal. Rock-Tenn’s pension fund was underfunded by about $1.1 billion. MWV’s U.S. pension fund was overfunded by about $1.3 billion, giving it a significant bargaining chip at the table.
As part of the deal, MWV shareholders would receive 0.78 shares of the new company for each share of MWV they own. Rock-Tenn shareholders will receive cash or a one-for-one share deal of the combined company.
Six current MWV directors will serve on the board of the new company. Rock-Tenn will have eight seats on the board.
MWV hired Bank of America Merrill Lynch and Goldman Sachs and financial advisers on the deal. Law firm Wachtell, Lipton, Rosen & Katz was its legal adviser.