UPDATE 2-Packaging Corp wraps up $1.28 bln deal for Boise
* Packaging Corp offers $12.55/share
* Says containerboard capacity to increase 42 pct
* Packaging Corp to assume $714 mln of Boise's debt
* Boise shares trading above offer price at $12.60
* Packaging Corp shares up 7 percent
Sept 16 (Reuters) - Packaging Corp of America has agreed to buy competitor Boise Inc for $1.28 billion as a means to expand production of cardboard boxes used by e-commerce giants such as Amazon.com Inc.
The deal will secure badly needed production capacity for Packaging Corp, the fourth-largest maker of containerboard and corrugated packaging in the United States, at a time when the industry is consolidating.
"The time had come where we were going to run out of tons, and it was time to add capacity," Executive Chairman Paul Stecko said on a conference call with analysts.
Boise's shares jumped more than 26 percent to $12.60 on Monday afternoon, slightly above the offer price of $12.55, in a sign that some investors might be expecting a higher bid.
The packaging business in the United States, bolstered by growth in e-commerce, is expanding roughly in line with U.S. gross domestic product growth and becoming more consolidated as industry leaders sweep up smaller competitors.
International Paper Co, the largest provider of shipping boxes, bought smaller rival Temple-Inland last year and said in July that it was able to raise prices for corrugated packaging due to high demand.
As part of the deal agreed in the early hours of Monday morning, Packaging Corp will assume $714 million of Boise's debt. The companies said in a joint statement that they expected the deal to close in the fourth quarter of the year.
By acquiring Boise, Packaging Corp will add 42 percent to its containerboard capacity and expand its sales in the Pacific Northwest. The Illinois-based company might also move some of its production to Boise's plants as a way to reduce costs.
The company might face a challenge, however, in developing Boise's white paper and freesheet business - an industry that has been declining in the United States as businesses cut down on stationary.
Boise's white paper business declined 8 percent during the latest reported quarter and the company closed an Oregon mill in December. International Paper is planning to close its Courtland paper mill in Alabama early next year.
But Stecko said he believed Packaging Corp's expertise in mill operations can meaningfully add to Boise existing plans to improve the white paper business, which would account for 18 percent of the combined company's sales.
"So, I think where that business goes long term is going to be determined by how good of a job we can do with it."
Packaging Corp plans to fund the deal through a $2 billion debt offering, consisting of bank debt and bonds. The company said it had received committed financing from BofA Merrill Lynch for the deal, which is expected to be completed in the fourth quarter of 2013.
The company's shares were trading 7 percent higher at $58.79 on the New York Stock Exchange on Monday afternoon.
Packaging Corp was advised by BofA Merrill Lynch and JP Morgan Securities LLC advised Boise.
Mayer Brown LLP was the legal adviser to Packaging Corp. Skadden, Arps, Slate, Meagher & Flom LLP advised Boise.