Atlantic Corp Case Study Essay
One of America’s largest forest products/paper firms with sales of $6.5Billion in 1983 and a net income of $105 million. The case study revolves around Atlantic Corporation’s intention to add linerboard capacity. In order to achieve this goal, they started looking at viable solutions, including purchasing and acquiring mill and box plants instead of through construction and fabrication of new plants and equipment. This included the possible acquisition of Royal Paper’s “crown jewels”, that is, the Monticello mill and the corrugated box plants.
Is the acquisition of Royal’s linerboard mill and box plants a sound strategic move?
One of the solutions was to offer a purchase of Royal Paper’s …show more content…
This investment in the linerboard industry will also diversity Atlantic Corporation’s risk. As 70% of the firm’s operating profit comes from the sales of plywood, which is correlated highly towards economic growth and changes in interest rates. However with the acquisition of the linerboard division, it will partly diversify away the risk as the linerboard market, even in times of high interest rates, demand for boxes will still remain. It is predicted that linerboard and box sales will further rise by 7% as GNP and industrial productions are extrapolated to increase as well. Geographically, this acquisition will allow the company to smooth out its ability to deliver linerboard to end users through an increased geographical coverage. Ultimately this is beneficial for the company as strong demand, limited supply and no new capacity will allow the industry, including the Monticello mill, to operate at nearly 100% utilization.
Valuation of Royal Paper Corp’s linerboard and box mill operations
For the valuation of the operations, we