Sealed Air gets $4.5 billion commitment for Diversey acquisition

By Jennifer Lanning Drey

Savannah, Ga., June 1 - Sealed Air Corp. has a commitment from Citi to structure $4.5 billion of financing in connection with its planned $4.3 billion acquisition of privately owned Diversey Holdings, Inc., David Kelsey, Sealed Air's chief financial officer, said Wednesday during a conference call held to discuss the proposed transaction.

The financing includes a $750 million global revolving credit facility and $3.8 billion of funded debt at close. The revolver will be undrawn at close, Kelsey said.

"We believe that we will be able to raise this debt at attractive rates, given today's historically low interest-rate environment," the CFO said.

When later asked during the question-and-answer portion of the call about whether all of the funded debt would be financed in the public market, Kelsey said Sealed Air was still fine tuning the exact structure but currently sees some term debt and a couple of capital markets transactions. Most likely, there will be a euro transaction and a U.S.-based component, he said.

"In terms of the underlying security, that's to be negotiated as we complete the bank syndicate, but we'll be following up with more information in that regard," he added.

Sealed Air will be looking at a blended cost of debt in the 6% to 7% range when considering everything expected to be drawn at closing, Kelsey later said.

The $4.3 billion valuation of the transaction includes $2.1 billion of cash, roughly $800 million of common stock based on the May 31 closing price and the assumption of roughly $1.4 billion of debt that will be refinanced.

The $4.5 billion of committed financing from Citi will provide ample liquidity to close the transaction as well as to run the combined company on an ongoing basis, Kelsey said.

The transaction will have no impact on Sealed Air's ability to fund its obligation under the W.R. Grace settlement when it comes due, Kelsey noted.

"As we expect to achieve returns above our cost of capital and expect further enhancement in margin improvement from existing operational initiatives, we feel the leverage associated with this strategic transaction is appropriate given the solid cash flow nature of both businesses," he said.

Rapid deleveraging

At closing, Sealed Air will have a pro forma net debt to EBITDA ratio close to 4.4 times but expects rapid deleveraging. The company projects it will generate annual free cash flow of more than $400 million post closing, which will be used to reduce leverage by one-half to three-quarters of a turn per year, Kelsey said.

Sealed Air's goal is to reduce leverage to between 2 times and 3 times as measured by net debt to EBITDA, which the company feels is the right range for the business, he said.

"This will also enhance our financial flexibility to pursue additional strategic growth opportunities and continue to return cash to our shareholders through our dividend program, Kelsey said.

Sealed Air expects to have about $700 million of cash and cash equivalents on the balance sheet at closing.

"Our goal is to operate for the long term with an investment-grade profile," he said.

Strategic growth opportunity

As a provider of cleaning, sanitation and hygiene solutions to industrial and retail customers, Diversey fit Sealed Air's criteria for making a sizable investment, William V. Hickey, Sealed Air's chief executive officer, said during the call.

The transaction represents a strategic growth opportunity that leverages Sealed Air's core competencies and positions the company to further capitalize on the mega trends that drive both businesses, he said.

"We felt this was the right industry for Sealed Air to take the next step. [The chemical cleaning and hygiene industry] is a $40 billion industry with attractive growth fundamentals already present in our value chain," he said during the call.

Diversey generated net sales of $3.1 billion and adjusted EBITDA of $453 million in 2010.

Expanded footprint, growth opportunities

Other benefits of the transaction include that it will extend Sealed Air's geographic footprint and growth opportunities in developing regions, expand its revenue opportunity with an overlapping customer base and broaden its solutions offering.

In addition, the transaction is expected to generate $50 million in total cost synergies in the second full year after close, with about $30 million generated in the first year.

The transaction is expected to be completed in 2011.

Sealed Air is an Elmwood Park, N.J.-based manufacturer of materials and systems for protective, presentation and fresh food packaging and performance solutions in the industrial, food and consumer markets.

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