Pactiv picks up Prairie

After tax benefits paying a multiple of 7X the company’s estimated 2007 EBITDA (earnings before income taxes, depreciation, and amortization) of $116 million, Pactiv Corp. (Lake Forest, IL) has purchased Prairie Packaging Inc. for $1 billion. Founded in 1987 by Earl Shapiro in Bedford Park, IL, Prairie grew to a $500-million business, selling injection molded, extruded, and thermoformed foam and impact dinnerware, cutlery, drink cups, straws, carryout packaging, salad containers, and portion cups. Prairie has five U.S. manufacturing sites and employs approximately 1200 people.

In a conference call with analysts announcing the deal, Pactiv Chairman and CEO Richard Wambold said Prairie’s custom cutlery filled a “sizable hole” in Pactiv’s portfolio, and the cups/cutlery sector represents a $3 billion market in North American that’s growing by 5% annually in North America. The 100% debt-financed deal is expected to close in the second quarter, and although the purchase price was high, Wambold told analysts there is value. “While not inexpensive, we believe it’s fair,” Wambold said, adding that Pactiv expects significant returns on its costs of capital.

Pactiv’s leader was also high on the level of automation employed by Prairie in its cutlery business, which focuses on the market’s higher end, as well as the ability to leverage resin procurement, in spite of increased exposure to polystyrene, which has been quite volatile of late. “My argument is it makes us a stronger purchaser of polystyrene,” Wambold said. “It’s not a resin-diversification move, but it may in fact help with the volumes to buy a little bit smarter.” Prairie’s owners will not come over to Pactiv, but Wambold said key management would.

Pactiv is a publicly traded company that generated $2.9 billion in 2006 sales and offers waste bags, slider bags, disposable tableware, disposable cookware, and a variety of custom and stock products for the food-service and food-packaging industries.

On Oct. 13, 2005, Pactiv completed the sale of most of its North American and European protective and flexible packaging businesses, including products like air cushioning and padded mailers, to an affiliate of international private equity firm AEA Investors LLC.

On March 15, 2005, Pactiv acquired thin-wall packaging injection molder Newspring Industrial Corp. for six times that firm’s 2004 EBITDA. Newspring’s 2004 sales were approximately $60 million.—[email protected]