Orora shares surge on hopes Lone Star will sweeten takeover offer

Investors are snapping up shares in the packaging giant, amid hopes US private equity group Lone Star will lift its rejected $3.4bn takeover offer.

Orora boss Brian Lowe at the company's $25m recycling facility near Gawler. Picture: Andre Castellucci

Investors have piled into packaging giant Orora, amid hopes US private equity group Lone Star will increase its $3.4bn takeover offer.

Orora has described the bid as “opportunistic” and “conditional”, as its shares soared 19.4 per cent on Tuesday to $2.28.

However, shares are still lower than the rejected $2.55 per share takeover offer from Lone Star.

Orora said the offer, less any dividends declared or payable, had been carefully considered by the board and its advisers who determined it is “not in the best interests” of its shareholders to further engage with Lone Star on the basis of the bid that “materially undervalues Orora”.

The group will release its full year results on Wednesday, when it will share an update on the progress it is making against its strategy.

“Shareholders do not need to take any action in response to the indicative proposal. Orora will keep shareholders updated in accordance with its continuous disclosure obligations,” Orora said in a release to the ASX.

The global packaging manufacturer and distributor admitted earlier this year it was facing a period of uncertain consumer demand and was focusing on cost management.

At the time, chief executive Brian Lowe said against a backdrop of challenging economic conditions, Orora – which has an almost 9000-strong global workforce – delivered a “solid earnings performance” in the first half. But the company’s shares are down almost 16 per cent this year amid concern some packaging markets may be slowing.

Last year, Orora spent $2.2bn acquiring French bottle manufacturer Saverglass from The Carlyle Group, an investment that has attracted criticism from shareholders.

Orora has downgraded earnings for its Saverglass business it purchased last year and there was concern at the time of the deal that glass companies traded on lower multiples than those in other parts of the packaging market and it was buying at the market peak.

One shareholder spoken to by The Australian’s DataRoom agreed with the company for rejecting the bid, saying it was opportunistic, and a move was likely timed to coincide with a weak set of numbers. They said an offer closer to $3 a share should be more carefully considered.

Saverglass, founded in 1897, produced highend luxury bottles for brands including The 126-year-old French business has a 33 per cent share of the market for high-end liquor brands including Grey Goose, Glenfiddich, Tequila and Hennessy.

Citi analysts Samuel Seow and Aashita Bharadwaj said that while there are “pockets of strength” in the company’s can and liquor bottle markets, it appears the majority of its end markets are still declining. “We think the cycle has further to play out,” the analysts said. Citi said demand for spirits such as Tequila were still growing but “on our estimates we think it only contributes about 15 per cent of Saverglass sales.”

Jarden analysts said Saverglass’ customers, which include global premium spirit manufacturers and bottle manufacturers, had been impacted by destocking. However, they noted that several green shoots had begun to appear in the June-quarter results leading them to grow more confident that there would be improvement in the liquor and spirits market.

Originally published as Orora shares surge on hopes Lone Star will sweeten takeover offer