Packaging Corp to buy Greif's containerboard business for $1.8 billion

Packaging Corp of America PKG said on Tuesday it would buy the containerboard business of peer Greif GEF for $1.8 billion, aimed at increasing its capacity for the material used to ship consumer goods and industrial products.

Shares of Greif rose 6%, while Packaging Corp gained 8%.

Proceeds from the deal will be used for debt repayment and align with Greif's sustainability strategy, "Built to Last," the company said in a separate statement.

Packaging Corp expects the deal to boost its earnings immediately after it closes, likely by the end of the third quarter of the current financial year.

The company gets access to Greif's two containerboard mills with about 800,000-ton production capacity and eight sheet feeder and corrugated plants.

"The deal boosts PKG's containerboard capacity to 6 million tons and further consolidates the North American containerboard market with positive implications at the margin for International Paper and Smurfit Westrock," said Jay Cushing, senior analyst at bond research firm Gimme Credit.

The deal comes at a time when packaging companies are tackling weak demand from consumer goods companies, as spending remains pressured by inflation and macroeconomic uncertainty stoked by U.S. tariffs.

"The mills nicely complement PCA's system and will provide containerboard to support PCA's continued corrugated products growth. We expect to achieve significant synergies with minimal capital investment," said Packaging Corp CEO Mark Kowlzan.

Packaging Corp, which already operates eight mills and 86 corrugated products plants and related facilities, sees synergies of about $60 million through pre-tax benefits within two years of the transaction closing.

The company said it plans to finance the transaction with $1.5 billion of new debt and cash on hand, and expects to have a net debt of 1.7 times its core earnings after the transaction closes, likely by the end of third quarter.