=WSJ BLOG/Deal Journal: Smurfit-Stone Sale: Victory Laps for the Soothsayers

(This story has been posted on The Wall Street Journal Online's Deal Journal blog at blogs.wsj.com/deals.) By Shira Ovide Nearly three weeks ago, Credit Suisse Group analyst C.A. Dillon published a research report that assigned 40% to 50% odds to a possible sale of cardboard box maker Smurfit-Stone Container, a call based in part on the companyÂ's lack of permanent management.

   It looks like one of the best calls of an admittedly young year. Rock-Tenn Co. maker of paperboard packaging for food and consumer-products companies, said it agreed to acquire Smurfit-Stonefor $3.5 billion in cash and stock. The deal comes just seven months after Smurfit-Stone emerged from bankruptcy protection. Smurfit's CEO has been a lame duck since announcing plans to retire more than a year ago, and its operating chief stepped down just at the turn of 2011.

   Â"After nearly two years since the Chapter 11 filing, Smurfit-Stone's over 16,000 remaining employees still do not know who their ultimate leaders will be, and we believe this state of flux could be affecting morale and operational effectiveness, despite recent cost savingsÂ....One must assume that the board is willing to tolerate the potential damage from this "institutional drift" as a price for waiting for an attractive deal,Â" Credit Suisse wrote.

   And while Credit Suisse tipped a bigger cardboard company such as Temple-Inland or Georgia-Pacific as a possibly buyer for Smurfit-Stone, the analyst also mentioned the possibility of Rock-Tenn teaming up with a private-equity firm to make a run at Smurfit-Stone. (In the announced acquisition, Rock-Tenn is going solo.)

   (Sidebar: Why are there so many hyphenated names among cardboard companies?)

   Credit Suisse recommended buying Smurfit-Stone shares, then trading at around $25 or 26 each. Credit Suisse tagged Smurfit-Stone with a $32 price target. The Rock-Tenn offer is valued at $35 a share.

   But the glory isn't all solo. Footnoted.com, which digs through securities filings, included Smurfit-Stone on its list of top-10 candidates for a 2011 takeover. Footnoted said it also was tipped to a possible takeover by the surprise resignation of Steven Klinger from his post as chief operating officer Â-- and his agreements to take a three-month consulting contract for $150,000 a month and to keep his company shares and options alive for six months.

   Â"Given the short-term of the consulting agreement and the specific conditions which benefit Klinger if a change in control occurs by the end of September, we think it's possible that negotiations for a sale are occurring," Footnoted said.

   -- Dana Cimilluca contributed to this post.

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   January 24, 2011 13:34 ET (18:34 GMT)

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