Anthony Pratt’s Visy in $1bn deal to buy Owens Illinois glass business in Australia, NZ

Anthony Pratt’s purchase of Owens Illinois’s local glassmaking business is one of Australia’s biggest manufacturing acquisitions.

Anthony Pratt is Australia’s richest person, according to The Australia’s latest The List- Australia’s Richest 250. Picture: Nick Klein

Billionaire Anthony Pratt has doubled down on Australia’s manufacturing sector by clinching the biggest deal of his career, with his paper making and recycling giant Visy acquiring the local glassmaking business of US firm Owens-Illinois in a $1bn transaction.

Mr Pratt, Australia’s richest person, announced the biggest deal in the 72-year history of Visy on Thursday, which will see Owens-Illinois (O-I) reap $947m as part of a transaction that includes property investment company Charter Hall paying $214m for O-I sites under a sale and leaseback arrangement.

The deal is expected to be completed by the end of July and will add more than $800m in revenue annually and earnings before interest, tax, depreciation and amortisation of up to $140m to the Pratt family’s manufacturing empire.

Mr Pratt said “manufacturing has never been more important to Australia’s future” and the addition of glass manufacturing to Visy’s portfolio is in line with the company’s long-term strategy of creating local manufacturing job opportunities and supporting local communities.

O-I is the largest manufacturer of glass bottles and containers in Australia and New Zealand, with factories in Sydney, Melbourne, Brisbane, Adelaide and Auckland. Meanwhile Visy – which is owned by Mr Pratt and his two sisters Heloise Pratt and Fiona Geminder – dominates the Australasian cardboard box manufacturing sector. Mr Pratt is also the sole owner of the fast-growing Pratt Industries business in the US.

“Importantly we will bring Visy’s sustainability culture to O-I, aiming to increase recycled content of glass bottles from one-third to two-thirds,” said Mr Pratt.

Visy will employ 7200 people in Australia and New Zealand after the acquisition. Visy and Pratt Industries combined made about $1.49bn in pre-tax profits from revenue of about $7bn in 2019.

About half the profits were made in Australia, meaning the O-I acquisition will add about 20 per cent to Visy’s annual EBITDA based on the former’s 2018-19 financial year earnings.

The financial report for Owens-Illinois Holding (Australia) Pty Ltd for the year to December 31, 2019, lodged this week with the corporate regulator and obtained by The Australian, showed the business had revenue of $833.8m last year.

It made a net loss of $9.2m after paying $14.1m in income tax for the year and incurring finance costs of $21m and depreciation and amortisation expenses of $87.3m. The financial report said O-I had net assets of $354m on its balance sheet.

While they did not put an exact figure on its impact, O-I’s directors noted in the report that the business has taken a hit from COVID-19 since March.

“We have seen some impact on our business to date,” the report said.

“The outbreak and the response of governments in dealing with the pandemic is interfering with general activity levels within the community, the economy and the operations of our business. The scale and durations of these developments remain uncertain … however they will have an impact on the financial operations of our operations.”

Mr Pratt and his family’s wealth was estimated at $16.95bn on The List – Australia’s Richest 250 – published by The Australian in late March, making him the country’s wealthiest person.

He said he is aiming for Visy and his US-based Pratt Industries to have $10bn in sales across the US and Australia by 2026.

Visy was in the final stages of buying the O-I glass business at the start of the year and had fended off competition from Pacific Equity Partners.

However, the transaction was delayed due to COVID-19.

PEP apparently approached Owens-Illinois about a year ago, offering to buy the business, before a sales process was launched by Goldman Sachs.

O-I, as it is more widely known, had been eager to divest the Australian and New Zealand operations as it wrestles with challenges closer to home in the US, where it wants to redeploy the proceeds from a sale.

In Australia, O-I has about 90 per cent of the beer bottle manufacturing market.

Rival Orora controls 70 per cent of the wine bottle manufacturing market.

Since the business was put up for sale, the company had promoted the merits of selling the land holding manufacturing plants to real estate groups and then leasing back the sites, including a larger riverfront site in Brisbane.

The pitch had been that a buyer could sell off the Brisbane land for a good price and relocate its operations closer to its brewery customers in the Queensland capital.

KKR embarked on a similar move with its acquisition of Arnott’s Biscuits.

The Australian’s DataRoom revealed the sale of the Owens-Illinois assets last year.

It reported last month that the North American group was to resume a sale and revealed that Visy was an interested buyer last year.