Atlantic Corporation Case Write-Up

Financial Restructuring

Atlantic Corporation Case Write-up

* Acquisition of Royal’s linerboard mill and box plants

It’s a favorable strategic move for Atlantic to fulfill its goal in increasing firm-wide linerboard capacity. Though it creates financing stress for now, the long-term benefits are tremendous:

Increasing production and revenue. Authentic analysis predicts that market will be healthy and profitable. Atlantic needs to improve its capacity (only 1.8% of industry level) to get involved in the boom. It costs much and takes long to build new plants, so buying instead is a better choice.

Reducing business and operating risk. While forest products are highly tied to the overall economy, linerboard is more sluggishly and indirectly related. Focusing more on linerboard will reduce business risk. Also it’s possible that linerboards become expensive or even unavailable in the future. Turning from a net buyer to a self-sufficient firm will lower Atlantic’s operating risk.

Controlling costs and improving competitiveness. After acquisition, Atlantic would be able to control the linerboard cost, and get the autonomy in manufacturing cardboard boxes. Also, the 16 target plants together with existing plants ideally cover most major American markets, and thus avoid unnecessary shipping cost and ensure profitability. Moreover, in the booming period, almost no new competitor could survive. Taking over the mill package from a huge rival would certainly enable Atlantic to promote its own competitiveness and weaken the rival’s.

Taking advantage of Royal’s “independence battle”. Since Atlantic believes that Royal Paper is now in a rush to exchange the plants for cash to repurchase its stock shares from hostile hands, it would be a precious opportunity for Atlantic to persuade Royal to sell the “crown jewels”.

* Outlook for linerboard market

Both the profitability and prices of linerboard are expected to increase. There are several reasons lying ahead. First,...