Sun-Backed PaperWorks Adds On

NEW YORK (Reuters) – Paper mill owner PaperWorks Industries, owned by private equity firm Sun Capital Partners Inc, is to take control of privately owned The Specialized Packaging Group, in a deal that expands the paper company into the packaging market.

Paper and packaging companies have struggled during the global economic downturn as the sharp slump in manufacturing and consumer spending led to lower demand for their products.

That has prompted consolidation in the industry and two packaging deals have already been signed this month — Rio Tinto’s (RIO.AX) $1.2 billion sale of its U.S. food packaging business to Bemis Corp (BMS.N) and Ball Corp’s (BLL.N) $577 million purchase of Anheuser-Busch InBev’s (ABI.BR) U.S. packaging unit.

Terms of the PaperWorks deal were undisclosed. A source familiar with the deal said Sun Capital will be the majority stakeholder in the combined company, which will have total revenue of $350 million. The source declined to be identified because the details are not public.

The deal creates the third-largest coated-recycled board company in the United States, behind Graphic Packaging (GPK.N) and Rock-Tenn (RKT.N).

“There really is a market opportunity for this business,” said Scott Edwards, principal at Sun Capital. He said the company has “tremendous opportunity” by becoming a No. 3 player in the U.S. market with Sun’s resources behind it.

PaperWorks owns two paper mills located in Philadelphia and Wabash, Indiana, and serves industries that include frozen foods, household goods, oral care and beverages.

Specialized Packaging, part-owned by founder Carlton Highsmith, operates five facilities in North America and supplies the laundry detergent, personal care, home storage and pet care markets.

The deal comes at a difficult time for private equity firms, which are battling to keep their portfolio companies healthy as the economy deteriorates.

One of Sun Capital’s portfolio companies, Kellwood Co , one of the largest U.S. apparel makers, is facing a looming deadline over its debt maturities.

Kellwood, which Sun Capital Partners took private in 2008, is trying to extend the maturity date of $140 million of bonds that come due midnight Wednesday, after Deutsche Bank (DBKGn.DE), the largest holder of the securities, backed out of an exchange offer on Friday.

By Megan Davies and Michael Erman

(Editing by Steve Orlofsky)