Amcor buys US rival Bemis for $8.25bn

Packaging giant Amcor has outlined a deal to acquire US-based rival Bemis in its biggest ever acquisition.

Packaging giant Amcor has outlined a deal to acquire US-based rival Bemis for $US6.1 billion ($8.25 billion) in its biggest ever acquisition, in an all-share deal that will see the Melbourne-based company shift its primary listing to the New York Stock Exchange.

The proposed scrip-based takeover, unveiled last night, will hand the acquisitive industrial player a new foothold in the North American and Brazil markets to complement its strong positions in Europe and Latin America.

However, Amcor’s Zurich-based chief executive Ron Delia will face pressure to justify the scale of the Bemis deal, which may struggle to clear the company’s return on funds hurdle rate.

The transaction has been agreed at a fixed exchange ratio of 5.1 Amcor shares for each Bemis share, resulting in Amcor and Bemis shareholders owning approximately 71 per cent and 29 per cent of the combined company, respectively.

This is equivalent to a transaction price of $US57.75 per Bemis share based on Amcor’s closing share price of $15.28 last Friday and represents a premium of 25 per cent to Bemis’s closing price of $US46.31 per share as of Thursday.

Amcor chief executive Ron Delia said the transaction delivered a “step change” for Amcor in North America.

“The strategic rationale for this combination and the financial benefits are highly compelling for both Amcor and Bemis shareholders,” Mr Delia said.

“We are convinced this is the right deal at the right time for both companies, and with the right structure for both sets of shareholders to participate in a unique value-creation opportunity.

“There are an increasing number of opportunities arising for a leading packaging company to capitalise on shifting consumer needs, an evolving customer landscape and the need to provide responsible packaging solutions that protect the environment,” he said.

Under the deal, Amcor is targeting $US180 million of annual cost savings from the merger. The merged entity will have combined revenues of $US13 billion, annual earnings of $US2.2 billion, annual cash flow after capital expenditure of more than $US1 billion.

While analysts have questioned the near-term returns from the transaction, they say the deal makes sense given Amcor’s flexible packaging segment in North America will expand its footprint.

“Currently Amcor’s sales in this segment total $US1bn of a total $US25bn market,” said Evans & Partners analyst Keith Chau said. “The acquisition of Bemis would increase its North America packaging exposure by a further $US2.6bn, in addition to adding to its footprint in Latin America and Rest of World (Healthcare, Europe and Asia Pacific).”

Amcor, which entered a trading halt yesterday, has made 16 acquisitions since 2014, although many have been smaller bolt-on deals. Buyouts in the last two years “should be contributing more in terms of earnings than they are currently”, Bank of America Merrill Lynch analysts wrote earlier this year.

“Amcor has stated that it aims to generate 20 per cent returns on investment by year three of an acquisition. “Otherwise it would be better off buying back shares for shareholder value creation,” BAML added.

Wisconsin-based rival packaging company Bemis, which has a market value of about $4.2 billion, makes flexible packaging for healthcare companies and consumer packaged goods providers like Kraft Heinz and employs around 16,000 people globally.

The Melbourne-based Amcor, which makes packaging and wrapping for consumer products, holds a market value of $US13bn and annual sales of $US9bn against $US4bn for Bemis. Amcor is due to release its full-year results on August 21.