Facing severe financial difficulties, Hadera Paper said on Monday it had agreed to sell its stake in a joint venture making home paper goods to its partner, the U.S. Kimberly Clark Corporation, for 648 million shekels ($162 million).
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The sale of Hadera’s 49.9% stake in Hogla-Kimberly, which was put together in just a few days, will yield Hadera Paper a pre-tax gain of about 500 million shekels, the company told the Tel Aviv Stock Exchange.
Hadera Paper shares, which have slumped some 60% amid the company’s chronic financial troubles, soared 27.7% to a close of 77.11 shekels in TASE trading Monday.
The proceeds from the sale will leave Hadera Paper in a better position to repay its 1-billion-shekel debt, most of it owed to bondholders.
“The sale plus the 650 million shekels that will be entered on the company’s books dramatically changes the extent of debt,” said CFO and acting CEO Gadi Kunya. “From now on the company can focus its resources on its core business, manufacturing and recycling paper.”
Hogla-Kimberly makes and sells a broad range of products for the home, retail and institutional markets under brands including Kleenex, Huggies, Molett and Lily. They including paper towels, toilet paper and napkins as well as Kimberly Clark’s KleenGuard protective clothing for workers.
Hogla was founded in 1969 as a subsidiary of Hadera Paper for manufacturing toilet paper and related products. Kimberly Clark came in as a joint venture partner with Hogla in 1996, initially as a minority partner.
Hogla-Kimberly, which had been a major profit center for Hadera Paper, had come under pressure in the past several months in the disposable diaper market due to increased competition from store brands and so-called parallel imports, in which retailers import goods through other suppliers.
Kimberly Clark Turkey, in which Hogla-Kimberly had invested $100 million, was another problem area for the joint venture. The sale of Hogla-Kimberly, in fact, got under way when Hadera Paper sought to sell its stake in the Turkish unit. Kunya said that under Kimberly Clark’s sole ownership, Hogla-Kimberly would be better able to help the Turkish unit because it has deeper pockets.
In the first nine months of last year, the latest for which there are financial reports, operating profit dropped to 35 million shekels from 46 million shekels for the same period in 2013. The company has 1,000 employees in factories in Afula, Nahariya and Hadera.
Sources close to the sale said the terms were settled in less than a week, with Hadera Paper chairman Johanan Locker flying to New York to conduct the talks.
Hadera Paper, which is 61%-owned by Clal Industries, a closely held holding company controlled by U.S.-Russian entrepreneur Len Blavatnik, was forced to sell after a long period of losses, mainly in its core business of manufacturing paper for printing and packaging. The losses were caused by increasing competition from low-cost producers in China and Turkey as well as declining demand for paper generally.
Disagreement inside Hadera Paper about how to stem the losses led last week to CEO Shlomo Liran’s stepping down after less than six months on the job.
The company’s financial troubles have reduced its TASE market capitalization to about 320 million shekels, less than half its shareholders’ equity at the end of the third quarter. Its long-term, Series 6 bonds have fallen about 15% since their peak price in 2014, leaving their yields at 8%. The Series 6 bonds also rallied on Monday’s news, climbing 7.5%, cutting the yield to 6%.
“The sale sends a clear message to the market that Hadera Paper is focused, that it understands what direction it is taking and what it needs to do realize its goals,” said Kunya. “Instead of managing debt, we’ll be able to concentrate on new growth engines.”
Nevertheless, the company has not yet decided whether to retire all or part of its debt early.