March 11, 2011 / 4:51 PM / 7 years ago

UPDATE 2-Cascades to sell foodservice packaging unit for $400 mln

* Co says net proceeds will be used mainly to pay down debt

* Transaction expected to close before end-April

* Shares rise 10 pct (Adds details, analyst quote, share movement)

March 11 (Reuters) - Canada’s packaging and paper products company Cascades Inc said it agreed to sell Dopaco Inc, its foodservice packaging business, to New Zealand billionaire Graeme Hart’s Reynolds Group Holdings Ltd for $400 million in cash.

The company’s shares were up 10 percent at C$7.34 on Friday on the Toronto Stock Exchange.

Net proceeds from the transaction, expected to close before the end of April, will be used mainly to pay down debt, Cascades said in a statement.

“These assets were core, but not necessarily synergetic with the rest of their business,” said analyst Pierre Lacroix of Desjardins Securities.

Lacroix said it is a strong message to the market that Cascades will now focus on improving its operations.

On Thursday, Cascades said it would restructure its Norampac unit in the United States following “several years of financial challenges at that location,” and it will result in closure of a box facility, affecting 100 jobs.

Reynolds is a subsidiary of Graeme Hart-owned Rank Group Ltd. Hart, a former tow-truck driver now ranked by Forbes as New Zealand’s richest man with a net worth of about $5.5 billion, has a history of making large acquisitions.

The Reynolds Group bought Pactiv Corp, the maker of Hefty food storage and garbage bags, for about $4.6 billion in August 2010.

Cascades said the sale is part of its overall strategy to gain more financial flexibility. It has total liabilities of C$2.44 billion ($2.50 billion) at the end of 2010, according to Thomson Reuters data.

Dopaco makes cups and folding cartons for the quick-service restaurant and food service industries. Its customers include Tim Hortons Inc , McDonald’s Corp and Jack in the Box Inc .

Cascades will, however, continue to supply boxboard to Dopaco, through a five-year supply agreement.

Bank of America Merrill Lynch is acting as financial adviser to Cascades.

$1 = 0.975 Canadian Dollars Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila

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