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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-1
(AMENDMENT NO. 8)
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
(AMENDMENT NO. 8)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
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SHOREWOOD PACKAGING CORPORATION
(Name of Subject Company)
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CHESAPEAKE CORPORATION
SHEFFIELD, INC.
(Bidders)
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Common Stock, $0.01 Par Value Per Share
(Including Associated Rights)
(Title of Class of Securities)
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825229107
(CUSIP Number of Class of Securities)
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Thomas H. Johnson
President & Chief Executive Officer
Chesapeake Corporation
1021 East Cary Street
Richmond, Virginia 23218-2350
(804) 697-1000
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
Copies to:
Gary E. Thompson, Esq.
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
(804) 788-8200
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January 20, 2000
(Date of Event Which Requires Filing of This Statement)
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This Amendment No. 8 to Schedule 14D-1 supplements and amends the Tender
Offer Statement on Schedule 14D-1, filed on December 3, 1999 (the "Schedule
14D-1"), by Sheffield, Inc., a Delaware corporation ("Purchaser"), and
Chesapeake Corporation ("Chesapeake"), a Virginia corporation and the direct
owner of all of the outstanding capital stock of Purchaser. The Schedule 14D-1
relates to the offer by Purchaser to purchase all outstanding shares of common
stock, $0.01 par value per share (the "Common Stock"), including the
associated rights to purchase preferred stock (the "Rights" and together with
the Common Stock, the "Shares"), of Shorewood Packaging Corporation, a
Delaware corporation (the "Company"), not directly or indirectly owned by
Chesapeake and its subsidiaries, for a purchase price of $17.25 per Share, net
to the seller in cash, without interest thereon, on the terms and subject to
the conditions set forth in the Offer to Purchase, dated December 3, 1999 (the
"Offer to Purchase"), and in the related Letter of Transmittal and any
amendments or supplements thereto (which collectively constitute the "Offer").
Capitalized terms used and not otherwise defined herein have the meanings set
forth in the Schedule 14D-1. This Amendment No. 8 to Schedule 14D-1 also
constitutes Amendment No. 8 to the statement on Schedule 13D of Purchaser and
Chesapeake, filed on November 30, 1999.
Item 10. Additional Information
Item 10 is hereby amended and supplemented by adding thereto the following:
(f) Attached hereto as Exhibit (f)(4) is the script used for Chesapeake's
Fourth Quarter 1999 Analyst Conference Call, which took place on January 20,
2000.
Item 11. Material to be Filed as Exhibits
Item 11 is hereby amended and supplemented by adding thereto the following:
(f)(4) Script used for Chesapeake's Fourth Quarter 1999 Analyst Conference
Call, which took place on January 20, 2000.
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: January 20, 2000
CHESAPEAKE CORPORATION
/s/ J. P. Causey Jr.
By: _________________________________
J. P. Causey Jr.
Senior Vice President, Secretary
& General Counsel
SHEFFIELD, INC.
/s/ J. P. Causey Jr.
By: _________________________________
J. P. Causey Jr.
Vice President & Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
(f)(4) Script used for Chesapeake's Fourth Quarter 1999 Analyst Conference Call,
which took place on January 20, 2000.
</TABLE>
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FOURTH QUARTER 1999 ANALYST CONFERENCE CALL
JANUARY 20, 2000
Vice President--Joel Mostrom
Good morning and welcome to Chesapeake Corporation's fourth quarter conference
call. I'm Joel Mostrom, vice president, and joining me today are Tom Johnson,
president and chief executive officer, and Bill Tolley, our chief financial
officer.
Tom will begin with comments regarding the overall results of the quarter and
year, followed by Bill's operations report. Tom will then update you on the
outlook for 2000, as well as the strategic initiatives that Chesapeake has
underway. After that, we will be available for questions--however, we will not
take questions about the Shorewood transaction or the litigation related to
it.
President and CEO Thomas H. Johnson
Good morning everyone. As most of you are aware, Chesapeake underwent a
significant transformation during 1999. This strategic repositioning is aimed
at moving us out of cyclical commodity businesses and into more defensible
specialty businesses with high growth and high return characteristics. In
March we acquired the Field Group, in August we sold the building products
business, in September we sold the timberlands, and in early October we
contributed substantially all of the assets of our Wisconsin Tissue business
to a joint venture with Georgia-Pacific. Today we are a completely different
company, one that is focused on specialty packaging and merchandising services
with the financial capacity to grow internally and by acquisition. With the
addition of Boxmore International and a U.S. packaging platform, we will be
virtually complete in the transformation of Chesapeake's business portfolio.
Earlier this morning we reported fourth quarter earnings before non-recurring
items of 39c per share, up 39% from last year's proforma fourth quarter
earnings. Net sales for the quarter were $245 million--up 11% over 1998
proforma net sales of $220 million.
Our fourth quarter net income included an after tax gain of $190M, or $10.75
per share, from the contribution of the tissue business to the Georgia-Pacific
Tissue joint venture. Also during the fourth quarter we announced a
restructuring program to streamline internal processes, increase efficiency
and reduce operating expenses. These restructuring actions resulted in an
after tax charge of approximately $29M during the quarter. Bill will give you
the details of the restructuring plan in his report. However, I will say the
program is expected to generate annualized pretax savings of approximately
$11M, or 40c per share.
For the full year 1999, we earned $1.86 per share, excluding non-recurring
items, a small decrease from 1998. The lower earnings per share were in part
due to higher raw material costs in our North American packaging segment,
specifically our corrugated container and graphic packaging divisions. In
addition, the lower earnings reflect the portfolio transition that is underway
at Chesapeake--specifically, the loss of operating income from the tissue
business and building and forest products businesses. As we re-deploy the cash
from the sale of those businesses into acquisitions, financial results with
respect to earnings per share should improve.
We are very pleased with the Field Group's contribution to the 1999 results.
This acquisition was accretive to earnings by about 20 cents per share for the
nine months they were included in our results, which exceeded our pre-
acquisition expectations. In addition, CPI's operations were included in the
fourth quarter results beginning in November; that acquisition is also
exceeding our initial estimates. The integration of Field Group and CPI from
an operational, financial and cultural perspective has been very successful,
and is tangible evidence that Chesapeake knows how to manage the integration
and change that is required to execute our strategy.
Now lets hear Bill's review of operations, before I talk more about our
outlook for 2000 and an update on our strategic initiatives...
Chief Financial Officer Bill Tolley
Good morning everyone. Tom gave you an overview of our fourth quarter
earnings. As usual, I'll provide a few details on the earnings as well as some
comments on the major changes to our balance sheet during the quarter. And,
finally, our fourth quarter restructuring has been finalized so I'll have a
few details to offer on that.
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As we said during our last call, we now own a 5% minority interest in the G-P
Tissue joint venture--which will provide us with a piece of what we expect to
be a very profitable business. However, in the near term, our share of the
joint venture's earnings isn't likely to be large enough to support tissue
segment reporting. So, we have included our share of the tissue joint venture
earnings in our Corporate and other line. We will, however, as the year 2000
unfolds, continue to show the historical results of our tissue business--that
is pre-joint venture--in all of the segment reports next year so you can
compare the "as reported" results year over year.
Now, here are a few details on what are now our core businesses.
The merchandising and specialty packaging segment's fourth quarter sales were
up 10% compared to the fourth quarter of 1998, due primarily to the acquisition
of Consumer Promotions International. Excluding CPI, sales were essentially
flat year over year. Volume gains in displays and the litho-laminated Color-Box
business, as well as higher year-over-year prices in the corrugated box
businesses were completely offset by lower prices in the Color-Box business--
which continues the trend we've seen throughout 1999. I should add, however,
that compared to the third quarter, fourth quarter prices were stronger in all
three of the businesses that comprise this segment.
The segment operating margin for the fourth quarter of 2.7% was down by 1.7
points from the fourth quarter of 1998 and down about a half a point from the
third quarter 1999 margin of 3.5 percent which is the seasonal peak in sales
and profitability.
As has been the case throughout 1999, there were three drivers to the year-
over-year margin change. First, the display and merchandising services business
continues to improve its margin by over two percentage points year over year.
But--the Color-Box litho-laminated business' operating loss continued to widen
due in large measure to underutilization of the capacity which was added back
in 1996. And, as Tom said earlier, both our Color-Box business and the
corrugated container business continued to be negatively affected by box
pricing that lagged repeated raw material cost increases in 1999.
We expect to finalize the litho-laminated business partnership with Georgia-
Pacific this quarter, which will combine our Color-Box business--which has
excess capacity--with G-P's litho-laminated packaging business, which is
already operating at capacity. As we said during the last quarterly call,
combining these two businesses should convert what is today a sizeable
operating loss into, in the year 2000, a $3 to $4 million annual pretax profit.
Looking forward, we expect Year 2000 operating margins in this segment to grow
by 3 full percentage points--driven by three things: 1) the impact of forming
the Color-Box partnership, 2) a recovery in corrugated box pricing and 3)
continued emphasis on cost and efficiency in the display and merchandising
services business.
On to European specialty packaging... For the fourth quarter, the Field Group's
sales of $106 million were up 11% compared to the fourth quarter of last year,
when they weren't a part of Chesapeake Corporation, and up 4% compared to the
third quarter of 1999, due to continued strength in the pharmaceutical and
healthcare sectors and a continuing--albeit slow--recovery in luxury products
and export tobacco. Field's fourth quarter operating margin of 10% was very
strong year over year--up 5 percentage points compared to the Asia-induced,
substandard fourth quarter of last year and up about a half a point compared to
the third quarter. You may recall that the fourth quarter of 1998 was the low
point for Field as a standalone company. Since then, sales growth and operating
margins have steadily recovered.
As we head into 2000, we expect healthy sales growth for Field as we continue
to focus on pharmaceutical, healthcare and technology sectors--and as export
tobacco markets continue to slowly recover. However, as we said during our last
call, raw materials costs in Europe started to rise last fall, which will put
pressure, near term, on prices and margins. Nevertheless, we expect modest
margin improvement at Field in Year 2000 due to continued focus on cost
reduction and efficiency improvement.
Our land development business continued to generate strong profits and cash
flow with fourth quarter EBIT of $3.2 million--up about just under half a
million from last year's fourth quarter.
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We continue to expect an annual pretax profit stream of at least $10 million
from our remaining land holdings for the next several years.
As usual, a couple of details on the balance sheet. During the fourth quarter
of 1999, our net debt dropped by about $600 million to $7 million, making the
company essentially net debt free at year-end. The major change, of course, was
the G-P Tissue tax-deferred cash distribution of $755 million. As I said, we
used these proceeds to reduce our net debt by $600 million. The rest,
approximately $155 million, was used to acquire Consumer Promotions
International, pay about $55 million of cash taxes on the timber sale gain, and
acquire 650,000 shares of Chesapeake stock at an average purchase price of $30
per share.
We also began to acquire shares of Boxmore in the open market after our offer
was announced in December. The cost of these shares, $26 million, was included
in "other assets" on the year-end balance sheet.
For the full year 1999, we bought 4.2 million shares of Chesapeake stock--about
20% of the outstanding shares at the beginning of the year.
Our deferred tax balance grew by $122 million during the fourth quarter of
1999, almost entirely due to the long-term deferral of gain on the formation of
the tissue joint venture.
Our stockholders' equity rose to $553 million at year-end, or about $31.50 a
share due to the accounting recognition of the gain on formation of the
Georgia-Pacific Tissue joint venture.
Our fourth quarter restructuring provision totaled $29.2 million after-tax.
There are four major components of the provision. First, we accrued for the
costs to close the Mechanicsburg, Pennsylvania, packing facility which, with
productivity improvements, had become underutilized. 135 people will be
affected. Second, we recorded the costs associated with reductions in workforce
across several of our businesses which affect a total of 340 people. Third, we
recorded an asset impairment write-down at our French packaging operations.
And, finally, we provided for legal and other costs associated with Shorewood's
proposal to acquire Chesapeake.
As Tom said, we expect annualized pre-tax savings from the restructuring
program of about $11 million which should start benefiting the P&L by the third
quarter of this year.
A couple of comments about the impact of acquisitions on Year 2000 earnings.
With two major acquisitions in process, it is difficult to be specific about
how accretive each one of the two proposed acquisitions will be--because in
order to do so, we'd have to make an assumption about which of the two
acquisitions comes first--which one gets the "credit", if you will, for the
underutilized cash on our balance sheet.
However, based on what we know today, we are comfortable in saying that the
Shorewood and Boxmore acquisitions--looked at either individually or combined--
will be solidly accretive to Chesapeake's earnings in Year 1. And, that is
before the expected significant synergies start to kick in in year 2.
A more precise impact on calendar Year 2000 earnings will have to wait until we
know, first, whether we will be successful in acquiring Shorewood and, if so,
when the purchase will be completed.
And finally, a reminder that our quarterly earnings pattern will remain very
seasonal with first quarter representing only 5 to 10 percent of the annual
total earnings. Second quarter should generate 10 to 20 percent of earnings for
the year. And, the remaining balance of 70 to 85 percent of earnings is
expected to be generated during the second half of the year, about evenly
divided between third and fourth quarters.
That's all I have for you today.
Thomas H. Johnson
I'd like to now turn to 2000 and other forward-looking thoughts around our
strategic direction. Before I do that, for those of you who may be new on the
call, let me remind you that at this time each year for the last two years we
have made explicitly public our business plan going forward that is attached to
the press release. And, I'm also pleased to say we have met those business plan
expectations each of the last two years, so it's in that spirit that we'll
share with you our views for the year 2000 moving forward.
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We are confident about the changes we have made at Chesapeake and our
competitive position as we head into 2000. Both sales and earnings should
improve as we realize the full year benefit of the Field and CPI acquisitions.
Also, the Color Box/G-P joint venture, currently scheduled to close in
February, should have a very positive impact on our year over year earnings,
estimated at 15c per share. Based on present business conditions, our estimate
for 2000 earnings is in the $2.10-$2.25 per share range. This estimate does not
take into account the acquisition of Boxmore, Shorewood or any other potential
acquisitions during 2000. That translates into EPS improvement in our core
business of 13% to 21% year over year.
We expect revenue for the year 2000 to be in the $900 million to $1 billion
range, and, as Bill indicated, we expect profit improvement in all three
business segments. As the year progresses and the timetable for finalizing
Boxmore or other potential acquisitions is determined, we will, of course, keep
you updated.
Now I would like to update you on the progress we have made in pursuit of
Chesapeake's ongoing strategy to become the world's premier specialty packaging
and merchandising services company.
During December, we announced our cash tender offer for Boxmore International,
a leading European packaging company headquartered in Northern Ireland. I am
pleased to report that the Board recommended tender offer of 265 pence has
received strong shareholder support and as of January 12, 2000, 57% of
Boxmore's shares have been tendered. Our offer will remain open through Jan.
26, 2000, and we would expect to close this transaction in February.
Boxmore's packaging business is an excellent strategic fit with our existing
European operations, and will expand our European packaging platform by
providing broader geographic coverage of our target markets--particularly in
the pharmaceutical and healthcare sector. Boxmore's plastics packaging business
is strongly positioned in attractive market niches, and is very profitable. We
expect to see synergies between Chesapeake and Boxmore from better utilization
of the combined network of European specialty packaging facilities, as well as
substantial operating and overhead savings. Although the final closing of
Boxmore is not expected until February, our integration efforts are already
underway. We've had several meetings with Boxmore's leadership team to assure
synergies can be realized quickly and the transition into Chesapeake is
seamless. We expect Boxmore's operations will be included in Chesapeake's first
quarter results beginning in February.
In addition to Boxmore, we are continuing to pursue an acquisition of Shorewood
Packaging Corporation. As many of you are aware, Chesapeake has filed suit in
the State of Delaware court to prevent Shorewood's directors from taking
actions to restrict Shorewood's shareholders' ability to consider our offer. A
hearing on two specific issues concluded on January 14 and a court decision is
expected by mid-February. Yesterday, we announced that we have extended our
tender offer to February 18. As of the close of business on January 18, 2000,
approx. 2.5 million shares of Shorewood common stock have been tendered to our
offer. As many of you know, we also have an agreement with Ariel Capital to
purchase 14.9% of the total Shorewood shares from Ariel.
We continue to believe that Shorewood would be a great addition to our North
American specialty packaging businesses and further enhance Chesapeake's
leadership position in our industry. And, as Bill indicated earlier, we expect
the combination of the two companies offers substantial synergies and will be
soundly accretive to our earnings.
In summary, this has been a year of significant change for Chesapeake. We
believe that our strategy--focusing on attractive target markets and offering
global capability, combined with an experienced management team that is focused
on building shareholder value, will generate outstanding EPS and cash flow.
Joel Mostrom
Thank you for participating in our call. For your advance planning, our first-
quarter call is tentatively scheduled for 11am Eastern Time on Tuesday, April
18th.
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This transcript, including comments by Thomas H. Johnson, Joel Mostrom and
William T. Tolley, contains forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The accuracy of such statements is subject to a number of risks,
uncertainties, and assumptions that may cause Chesapeake's actual results to
differ materially from those expressed in the forward-looking statements
including, but not limited to: competitive products and pricing; production
costs, particularly for raw materials such as corrugated box, folding carton
and display materials; fluctuations in demand; governmental policies and
regulations affecting the environment; interest rates; currency translation
movements; the formation of the Color Box litho-laminated joint venture with
Georgia-Pacific; the outcome of the company's offer to acquire Shorewood
Packaging Corporation; and other risks that are detailed from time to time in
reports filed by the Company with the Securities and Exchange Commission.
CERTAIN INFORMATION CONCERNING PARTICIPANTS
Chesapeake Corporation ("Chesapeake") and Sheffield, Inc., a wholly owned
subsidiary of Chesapeake ("Purchaser"), and certain other persons named below
may be deemed to be participants in a consent solicitation (the "Consent
Solicitation") that may be conducted by Chesapeake and Purchaser in connection
with the tender offer (the "Offer") by Purchaser to purchase all of the
outstanding shares of common stock ("Shares") of Shorewood Packaging
Corporation ("Shorewood") for $17.25 per Share net to the seller in cash. The
participants in this solicitation may include: (i) the directors of Chesapeake
(Harry H. Warner, Chairman of the Board; Thomas H. Johnson, President & Chief
Executive Officer; Robert L. Hintz; James E. Rogers; John W. Rosenblum; Frank
S. Royal; Wallace Stettinius; Richard G. Tilghman; Joseph P.Viviano; and Hugh
V. White, Jr.); and (ii) certain officers of Chesapeake: J.P. Causey Jr.,
Senior Vice President, Secretary & General Counsel; Andrew J. Kohut, Senior
Vice President-Strategic Business Development; Octavio Orta, Executive Vice
President-Display & Packaging; William T. Tolley, Senior Vice President-Finance
& Chief Financial Officer; Molly Remes, Director-Corporate Communications; and
Joel Mostrom, Vice President-Land Development. As of the date of this
communication, approximately 14.9% of the outstanding Shares of Shorewood, or
approximately 4.1 million Shares, are beneficially owned by Chesapeake and
Purchaser (including Shares to be purchased pursuant to a stock purchase
agreement between Chesapeake and a third-party). Chesapeake has retained
Goldman, Sachs & Co. ("Goldman Sachs") and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") to act as its co-financial advisors in
connection with the Offer, for which Goldman Sachs and DLJ will receive
customary fees, as well as reimbursement of reasonable out-of-pocket expenses.
Chesapeake and Purchaser have retained Goldman Sachs and DLJ to act as their
Co-Dealer Managers in connection with the Offer, for which Goldman Sachs and
DLJ will receive customary fees, as well as reimbursement of reasonable out-of-
pocket expenses. In addition, Chesapeake and Purchaser have agreed to indemnify
Goldman Sachs and certain related persons and DLJ and certain related persons
against liabilities, including certain liabilities under the federal securities
laws, arising out of each of their engagements. Neither Goldman Sachs nor DLJ
believes that they or any of their respective partners, directors, officers,
employees, affiliates or controlling persons, if any, is a "participant" as
defined in Schedule 14A promulgated under the Exchange Act in the solicitation
of proxies and/or consents, or that Schedule 14A requires the disclosure of
certain information concerning Goldman Sachs or DLJ. In connection with Goldman
Sachs' role as Co-Dealer Manager to Chesapeake and Purchaser, the following
investment banking employees of Goldman Sachs may communicate in person, by
telephone or otherwise with a limited number of institutions, brokers or other
persons who are stockholders of Shorewood and may solicit consents from these
institutions, brokers or other persons: Ravi Sinha, George Mattson, James
Katzman, Peter Comisar and Jason Gilbert.
In connection with DLJ's role as Co-Dealer Manager to Chesapeake and Purchaser,
the following investment banking employees of DLJ may communicate in person, by
telephone or otherwise with a limited number of institutions, brokers or other
persons who are stockholders of Shorewood and may solicit consents from these
institutions, brokers or other persons: L. Price Blackford, Doug Brown, Daniel
Schleifman, Robert Simensky and Andrew Kramer. Goldman Sachs and DLJ each
engage in a full range of investment banking, securities trading, market-making
and brokerage services for institutional and individual clients. In the normal
course of its business Goldman Sachs and/or DLJ may trade securities of
Shorewood for each of their own accounts and the accounts of their customers
and, accordingly, may at any time hold a long or short position in such
securities.
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Goldman Sachs and DLJ has each informed Chesapeake that, as of the date hereof,
neither of them holds any Shares for its own account. Goldman Sachs or DLJ
and/or certain of their respective affiliates may have voting and dispositive
power with respect to certain Shares held in asset management, brokerage and
other accounts. Goldman Sachs, DLJ, and each such of their respective
affiliates disclaim beneficial ownership of such Shares. Other than as set
forth herein, to the knowledge of Chesapeake and Purchaser, as of the date of
this communication, none of Chesapeake, Purchaser, any of their respective
directors, executive officers, employees or other representatives, or other
persons known to Chesapeake or Purchaser who may solicit consents has any
interest, direct or indirect, in Shorewood by security holding or otherwise.
6
