Now, turning to Specialty Chemicals. As an independent business, Specialty Chemicals will be strongly positioned to grow even faster as a leader in pine chemicals and activated carbon technology. Through our strategy focused on chemical markets aligned with global mega trends such as infrastructure, transportation and energy development, this business has built tremendous strength in highly differentiated products, flexible assets with global reach, deep market insights and applications expertise and world class talent and leadership.
As with packaging, the strategy of Specialty Chemicals has been supported with investment that sets the stage for substantial future growth. As one example, we continue to expand our activated carbon capacity and capabilities around the world to serve the growing automotive market driven by vehicle minute growth and increasingly stringent government regulations in the U.S., China, Europe and elsewhere. Together, the opportunities we see in carbon, asphalt, adhesive and other fine chemical applications give us a line in sight that the business can double again in the next five to seven years while continuing to be one of the most profitable participants in the global specialty chemical sector.
Before I pass off to Mark, I also want to note that the pending separation of Specialty Chemicals has given us an opportunity to realign resources across the enterprise of the MWV to fully capitalize on the formation of two standalone companies. We have begun a comprehensive organization redesign in packaging that will accelerate execution of our profitable growth strategy and our path market leadership. We are working with a leading global consulting firm to design an organization capable of executing on our strategy with an appropriately sized support structure that will increase the competitiveness of our repackaging company and deliver attractive total returns to shareholders.
Now, I will turn it over to Mark.
Mark Rajkowski, SVP, Chief Financial Officer, MeadWestvaco Corporation
Thanks, Bob. I will quickly review the structure of this separation, our initial costs on capital structure for each new business and finally, the expected timing of the separation and immediate next steps.
We have been carefully evaluating all of the options for separation of Specialty Chemicals with the focus on value maximization. While we remain open to other alternatives during this process, we have determined that a spin-off in which the business would be a new publicly traded company that is 100% owned by MWV’s then current shareholders will likely best capture the substantial present and importantly, the future value of this business. The transaction is expected to be tax free to our shareholders in the company.
In terms of capital structure, as independent companies in different industries with different strategic priorities, growth profiles, and asset intensity, there are a number of factors to consider to ensure that each company’s capital structure permits long-term financial success and optimal shareholder returns.
With MWV’s packaging business, economic access to capital to all business cycles is critical giving the asset intensity and annual maintenance requirements of the business. Dividend yields in growth also are important to ensure we provide strong in-growing returns to our shareholders. Therefore, we expect to maintain MWV’s investment grade credit writing as well as providing a strong dividend for our shareholders.
For the Specialty Chemicals business, the key priority is providing sufficient access to capital for growth as Bob mentioned. We expect the business to double in size over the next five to seven years. As such, we don’t want to constrain the business with excess leverage or substantial dividend payout on separation. We expect to lever the Specialty Chemicals business around two times EBITDA which will provide cash to MWV of approximately $500 million. This will enable us to maintain MWV’s investment grade credit rating while at the same time, providing the Specialty Chemicals business with sufficient capacity for future growth capital.
In terms of timing, we are working towards completing the separation by the end of 2015. The immediate next steps includes finalizing our filings for a tax re-ruling and preparing the Form 10 with audited financial statements for the Specialty Chemicals business.
With that, I will turn the callback to John.
