James River Corp., the Richmond-based paper products manufacturer, said yesterday it had secured a major foothold on the West Coast with an agreement to buy a complementary line of paper products from Crown Zellerbach Corp. of San Francisco.
The acquisition, planned for early next year, will be made through a complex exchange of stock by the two companies that would be worth more than $750 million based on current prices for James River stock. The final price would be determined at the time the formal offer is made next year.
The addition of Crown Zellerbach's paper-products manufacturing-and-distribution business would raise James River's annual sales from $2.5 billion this year to an estimated $4.5 billion, continuing the string of acquisitions that have pushed the company's revenue up from $41.8 million in 1975.
Sir James Goldsmith, the British financier and takeover specialist who won a fight for control of Crown Zellerbach in July, would retain control over the other main pieces of the company that James River does not acquire. These are Crown's timber and forest products business, a corrugated container manufacturer and a company that makes products for computers and other electronic office equipment. Together they had sales of less than $500 million last year.
Goldsmith's gain on the transaction cannot be determined until more information about the agreement is issued by the companies, analysts said.
James River would acquire 17.6 million shares of Crown under the agreement, and Crown's product lines in business and communications papers, paper distribution, towel and tissue products and flexible packaging.
At the same time that offer is made, Crown would offer to buy back the other 13.6 million shares of its stock in exchange for $90 million and the stock of the three remaining businesses. Each Crown shareholder who accepts this offer would get one share in each of the three former Crown subsidiaries, plus about $6 for each Crown share.
The agreement is subject to a host of complex conditions, including one that entitles Goldsmith to acquire at least 78 percent of the 13.6 million shares. "This is one of the more complicated stock deals that I have ever seen," said George Williamson, an analyst who follows James River for Davenport & Co. in Richmond.
The division of Crown's assets is consistent with James River's strategy of concentrating in production and distribution of paper products while shunning holdings in timber. James River's paper products are marketed under the Dixie, Papermaid, Vanity Fair and Northern brand names.
James River said the acquisition would not reduce its earnings per share or add to its debt. Crown Zellerbach's debt will be assumed by shareholders who exchange stock for the shares of the three new companies, a James River spokesman said.
Williamson said the arrangement looked good for both sides, at first glance. The acquisition of the Crown paper products business gives James River a West Coast presence for the first time. About 90 percent of its business is now east of the Mississippi, he said. And the size of the deal fit James River's capacity, he said. "I don't think James River had the money to purchase everything Crown Zellerbach had."
"The intricacies of Sir James' holdings played a big part" in the agreement, Williamson added. "He is the principal stockholder in Crown Zellerbach and he wanted it to be structured in a way that would make him the most money."
At the same time, the offer will look inviting to Crown Zellerbach's other shareholders. The company's stock fell from $53 a share in 1981 to $15 in 1982. Its improvement since then "has always been on the hope of a takeover or acquisition," Williamson said. From a low this year of $31 a share, it moved up above $41 yesterday.
James River stock fell $1.67 from a high of $39 a share yesterday to $37.25, while Crown Zellerbach rose $2.75 to $41.67.
The value of the James River shares to be exchanged for Crown Zellerbach stock will be based on the average price for James River stock during a 17-day period prior to the date the exchange offer is formally made. There is a limited escalator clause in the agreement that would increase the value of the exchange to Crown Zellerbach shareholders if James River's stock price rises above $32 a share during the 17-day period.
If the James River price averages $32 a share, Crown Zellerbach stockholders would receive $41 a share, or $721 million. A $36-per-share price for James River would make the exchange worth $756 million