LAKE FOREST, Illinois -- Packaging Corporation of America said it will acquire Sacramento Container Corporation, and 100 percent of the membership interests of Northern Sheets and Central California Sheets in a cash-free, debt-free transaction for $265 million.

The company has also announced that it will discontinue production of uncoated free sheet and coated one-side grades at its Wallula, Washington mill in the second quarter of 2018 to begin the conversion of its 200,000 ton-per-year No. 3 paper machine to a 400,000 ton-per-year high-performance 100 percent virgin kraft linerboard machine.

Under the terms of the agreement, PCA will acquire full-line corrugated products and sheet feeder operations in McClellan, California and Kingsburg, California.

"The acquisition of these well-capitalized facilities will further enhance our operations both geographically and strategically," PCA Executive Vice President Tom Hassfurther said, "Also, the customer-focused employees and strong management teams of Sacramento Container, Northern Sheets and Central California Sheets will be an excellent fit with PCA's culture. This group has built a successful business based on providing outstanding quality and service to a wide array of customers located in the northern and central regions of California."

Closing is subject to certain customary conditions and regulatory approval and is expected early in the fourth quarter of 2017. The company plans to finance the transaction with available cash on hand.

The conversion of the No. 3 paper machine at the Wallula Mill is planned for the second quarter of 2018 with an initial production rate of approximately 60 percent of capacity. Ultimately, production will increase to 1,150 tons per day once a new headbox, forming section, and shoe press are added in the fourth quarter of 2018. The capital cost of the conversion is expected to be approximately $150 million. Discontinuing paper operations at the Wallula Mill will result in pretax cash severance and other shutdown charges of approximately $20 -- 25 million and approximately $45 -- 55 million of pretax noncash asset impairment and accelerated depreciation charges. Charges of $25 -- $35 million are expected to be recorded in the third quarter of 2017. The Mill's No. 2 paper machine will continue to produce 150,000 tons-per-year of semi-chemical medium.

"Our strategy is to improve the overall profitability of the paper business for PCA by focusing our people and investments on increasing our competitiveness and ensuring a sustainable future in the office and printing & converting markets with our mills in International Falls, MN and Jackson, AL.," said PCA Chairman and CEO Mark Kowlzan,

"In addition, at our current containerboard integration rate of 95 percent, the low-cost conversion of the No. 3 paper machine at our Wallula Mill provides us with much needed linerboard capacity, allows us to integrate over 200,000 tons of containerboard to our Sacramento Container acquisition, and enables further optimization and enhancement of our current mill capacity and box plant operations. The conversion will significantly enhance the mill's profitability and viability," Kowlzan added.

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