This Packaging Stock Is Up 17%. Why a Take-Private Deal Makes Sense.

The Wall Street Journal said the company was in take-private talks with Clayton Dubilier & Rice. (Angus Mordant/Bloomberg)

Key Points

• Sealed Air shares surged 17% after a report of a potential take-private deal with Clayton Dubilier & Rice.
• Mizuho analyst Edlain Rodriguez noted Sealed Air’s Food Care segment comprised 67% of sales and 74% of Ebitda over the past 12 months.
• Sealed Air’s Protective Care division has experienced 15 consecutive quarters of volume declines.

Shares of packaging company Sealed Air surged by double-digits on Thursday after a report suggested the Bubble Wrap maker was in talks to go private.

Private-equity firm Clayton Dubilier & Rice was discussing a take-private deal for the company, The Wall Street Journal reported, citing people familiar with the matter.

While the report was sparse on details, it boosted shares by 17%, putting Sealed Air on pace for the largest daily percentage increase since a 25% jump in March 2020, according to Dow Jones Market Data.

Sealed Air didn’t immediately reply to a request for comment.

Coming into Thursday, shares had gained just 7.5% this year. The benchmark S&P 500 index, by comparison, is up more than 16%. Packaged Air ended Wednesday’s session with a market capitalization of $5.35 billion.

The market reaction suggests a take-private deal would be viewed favorably by investors. Such arrangements can help a company escape the pressure of the public market and focus on long-term strategy.

“We have no view on whether the story is true, but investors have been pushing for the company to take drastic action regarding the portfolio,” Mizuho analyst Edlain Rodriguez said Thursday.

He noted that Sealed Air’s Food Care segment comprised 67% of sales over the last 12 months, as well as 74% of earnings before interest, taxes, depreciation, and amortization.

While it’s viewed as a “great franchise,” the same can’t be said for Sealed Air’s Protective Care division, which has been “dragging the company’s value as volume has been under pressure since the end of 2021,” Rodriguez said. The segment creates packaging materials for a range of industries outside food, in areas such as consumer goods and e-commerce.

Food Care may drive most of the company’s value, but Wall Street’s focus has been on Protective Care, which has posted 15 back-to-back quarters of declines in volume.

“For the past couple of years, frustrated investors have closely monitored management’s progress in addressing this situation in a timely manner,” Rodriguez said.

Thursday’s gains put the stock on pace for its highest close since Aug. 7, 2023, when it ended the session at $44.08.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com