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Sealed Air Cheap Deal Rests on 'Cheap' Money

Wednesday, 1 Jun 2011 | 11:23 AM ET

It’s a big move for Sealed Air, the food packaging manufacturer, and a big win for Clayton, Dubilier & Rice.

Sealed Air’s decision to diversify by buying Diversey is being pitched as a cheap buy of a good company. Sealed Air is paying about 9.7 times trailing EBITDA (8.8 times when you include expected synergies) and that multiple is cheaper than the the 11 multiple accorded industry leader Ecolab.

There’s also the matter of cheap money. As part of the deal, SEE is refinancing Diversey’s debt at a nicely lower rate than it currently pays.

Still, one has to always consider why a company would make such a big move outside of its area of expertise (packaging), rather than simply using the $2.1 billion in cash being deployed here (another $800 million is being paid to Diversey’s owners in stock) to buy back its own shares.

Sealed Air has prepared a detailed presentation describing the merits of the transaction, which will move 42 percent of its revenue into cleaning and sanitization. It seemed to have the desired effect on its share price at the open.

However, after being up sharply, SEE is now down for the day.

One clear winner here is CD&R. The firm invested $477 million in Diversey in October 2009, gaining a 46 percent ownership stake. That 46 percent ownership stake is now worth $1.33 billion based on the $2.9 billion being paid for the company.


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