NORTHBROOK, Illnois -- KapStone Paper and Packaging Corporation and Victory Packaging/Golden State Container jointly announced 5 May 2015 that they have signed an agreement for KapStone to acquire the assets of Victory Packaging in a cash-free, debt-free transaction for $615 million in cash, subject to post-closing adjustments. In addition, two contingent earnouts totaling $45 million could be payable two and a half to four years after the close and are based on the continued strong growth of the business. Closing of the acquisition is subject to a number of customary conditions, including regulatory review.

The structure of the transaction will enable KapStone to realize a tax benefit that has an estimated net present value of approximately $100 million. Taking this benefit into account, the net purchase is about $515 million.

Founded in 1976, Victory Packaging, headquartered in Houston, TX, is a large, national distributor of all types of packaging specializing in providing unique solutions for its clients. Through its 65 distribution centers located in the United States, Mexico and Canada, Victory services customers with complex needs that often are not attractive to other integrated box manufacturers. Victory's net sales grew to $953 million and adjusted EBITDA reached $55 million for the year ended December 31, 2014, and the CAGR for both net sales and adjusted EBITDA was in excess of 14% for the past four years.

Chairman and Chief Executive Officer of KapStone, Roger W. Stone, said, "Acquiring Victory will provide KapStone with growth based on Victory's impressive, profitable track record. The acquisition will allow KapStone to de-risk operations by providing a higher level of integration. Victory is a unique strategic fit that will simultaneously increases utilization of our converting assets and mills. Victory currently buys approximately 370,000 tons of corrugated products annually of which KapStone expects to supply an incremental 115,000 tons. Victory will still rely heavily on their current supplier base to fill the remainder. Conservatively estimated, these synergies are expected to reach $30 million of EBITDA in 24 months. The deal is accretive to our bottom-line from Day 1. Our balance sheet, which was strong going into this transaction, remains strong after the acquisition. The combined company is expected to deliver substantial free cash flow in the first year allowing KapStone to quickly de-lever."

Matt Kaplan, President and Chief Operating Officer of KapStone, added, "As a previous board member of Victory, I was able to fully gain an appreciation for their abilities to deliver superior services, drive excellent operating performance, and deliver results to the bottom line. Therefore, I am delighted to have the Victory team join KapStone and am looking forward to the significant benefits that the combined companies will achieve."

Benjamin Samuels, Chief Executive Officer of Victory, said, "Victory recognizes that making our next leap will take more resources and experience. We are excited about the match of KapStone's people and business model to where Victory is headed. Almost forty years ago, Vic Samuels started with a dream of building a new packaging experience focused on the customer. Today, we are taking the next step in the fulfillment of that dream by partnering not only with some of the best people in the industry, but with good friends."

Robert Egan, Chief Operations Officer/President of Victory Packaging, said, "We are excited about the opportunities the business combination brings to our Victory family, our customers and the packaging community. The integrated business models of KapStone and Victory Packaging allow both organizations to meet their expansion goals, add immediate value and provide an avenue for future growth. We are thrilled to join the KapStone family and expand our North American presence and capabilities."

Stone said, "Strategically, the acquisition of Victory is a great next step for KapStone. The acquisition transforms KapStone into a much stronger company providing additional momentum for KapStone to continue its record of excellence in increasing value to our shareholders."

KapStone has committed financing from Bank of America, Barclays Bank, and Wells Fargo Bank.

The transaction is expected to close in the second quarter of 2015.