Temple-Inland buys out Caraustar's venture stake

The news sent shares of Austell, Ga.-based Caraustar up 30 cents, or 15.4 percent, to $2.25 in morning trading. Temple-Inland fell 23 cents to $12.98.

Premier Boxboard (PBL) produces lightweight gypsum facing paper and containerboard at a 308,000 tons-per-year mill in Newport, Indiana. Gypsum facing paper resists mold, mildew and moisture.

Temple-Inland will continue to produce the paper and containerboard at the mill for both its building products operations and external customers. Containerboard produced at the mill will be primarily used by Temple-Inlands corrugated packaging operations.

Caraustar has been the managing partner of PBL since its formation in 1999. Effective immediately, Temple-Inland terminated the marketing and management agreements between PBL and Caraustar, eliminating $4 million in annual fees paid by PBL to Caraustar.

Temple-Inland said it will see cost savings of about $10 million from expense reductions, improved productivity and better product mix as the mill is integrated with Temple-Inland's system.

The company will fund the cash portion of the purchase price with borrowings under its existing credit facilities, and said the deal will immediately add to earnings. PBL employees will join Temple-Inland.

Separately, Caraustar said it will use proceeds from the sale to repay all $34 million of its senior credit facility borrowings, for working capital and other debt repayment.

"Completing the sale of our interest in PBL is the first step in that plan and raises a portion of the funds necessary to refinance the company's senior notes while mitigating exposure to the volatile housing market," said Michael J. Keough, president and chief executive of Caraustar. The company hired J.P. Morgan Securities Inc. to assist in evaluating financial alternatives.

Caraustar said it will continue to produce gypsum facing paper at its Sweetwater mill.