Shares of Sealed Air (SEE) dropped after the company announced plans to sell its Diversey Care division and the food hygiene and cleaning business within its Food Care division to a private equity firm for about $3.2B. On a conference call discussing the deal, Sealed Air said it is not currently in talks on a "transformative deal."

NEW DIVERSEY SALE TO BAIN: Sealed Air stated this morning that it will sell its Diversey Care division and the food hygiene and cleaning business within its Food Care division to private investment firm Bain Capital Private Equity for approximately $3.2B. The food hygiene and cleaning business, which is part of Sealed Air's food care division, and Diversey Care will be called New Diversey, the company said. Sealed Air said it will use the proceeds of the deal to repay debt, maintain its net leverage ratio in the range of 3.5-4.0 times, repurchase shares to minimize earnings dilution and fund core growth initiatives, including possible complementary acquisitions to its Food Care and Product Care units. The deal, which is expected to close in the second half of 2017, will allow Sealed Air to focus on "accelerating profitable growth and generating strong cash flow through end market opportunities and the global adoption of new products and solutions," it said. New Diversey has about 8,600 workers globally and it and the related food hygiene businesses combined generated net sales of approximately $2.6B in 2016. This morning, Sealed Air's board also approved an additional $1.5B for its share buyback authorization, bringing the total to about $2.2B. Sealed Air will maintain its quarterly cash dividend of 16c per common share while the company reduces earnings dilution, the company said, adding that the board will continue to evaluate the quarterly cash dividend annually.

WHAT'S NOTABLE: Sealed Air acquired Diversey in 2011 from the Johnson family and private equity firm Clayton, Dubilier & Rice LLC, for about $4.3B in cash and stock. Reuters said in an article earlier this month that Sealed Air was in talks to sell Diversey to Bain for $3B-$4B, allowing Sealed Air to focus on its high-margin food, product and medical packaging operations by selling a hygiene and cleaning solutions division that it no longer sees as core to its business. According to sources, if Sealed Air did not end up selling Diversey, the company would revert to its previous plan to spin off the unit. On the conference call discussing the deal with Bain, Sealed Air said the transaction is "significant" for both Sealed Air and New Diversy, explaining that the divestiture will "extraordinarily simplify" the company. Sealed Air said it is not yet able to provide a continuing operations forecast, but will give more details on its May 9 earnings call. The company also noted that it is not divesting New Diversey "because we have an acquisition in mind" and it is not in negotiations for a "transformative" acquisition, but that it is looking at some bolt-on acquisitions. The company does not see making a substantial acquisition in the near-term, executives said. Regarding the share buyback authorization, Sealed Air said that it plans to do a combination of open market repurchase and accelerated share repurchases to address dilution.

DIVERSEY SALE 'NEUTRAL TO MODEST NEGATIVE': Jefferies analyst Philip Ng said in a March 1 note to clients that a $3B-plus sale of Diversey, rather than pursuing a spinoff, would be neutral to a modest negative for Sealed Air. Assuming Sealed Air is able to find an accretive acquisition and use a large portion of the proceeds for buybacks, the divestiture would likely be dilutive or neutral to earnings, free cash flow and its valuation, Ng said at the time. Ng has a Hold rating on Sealed Air with a $45 price target.

PRICE ACTION: Sealed Air is down 4.25% to $42.77 in morning trading. Shares are down by more than 5% year-to-date.