Australian listed packaging giant Amcor has tapped UBS and Goldman Sachs for its acquisition of global peer Berry Global Group in a scrip merger deal that values the target at about $US8.4bn ($13bn).
Working for Berry, one of the world’s largest makers of plastic consumer containers and closures, is Lazard and Wells Fargo.
The scrip merger deal was announced Tuesday overnight, cementing Amcor’s position as the largest plastic packaging company in the world.
It is the largest industrials mergers and acquisitions transaction in Australia since CEMEX bought building materials group Rinker in 2007 for $US14.2bn.
Analysts believe it is likely to be the last major transformational acquisition for the $18bn Australian and New York-listed packager, with subsequent deals potentially linked to sales of lesser performing units.
The deal came as a surprise to the market, which had largely dismissed the possibility of a transformational acquisition by Amcor, because it was carrying $US6bn net debt, despite the group flagging acquisitions were on the agenda.
Amcor shares in the US traded lower after the announcement of the transaction and closed down more than 1 per cent in Australia, caused by hedge fund trading and concern about doubling down in plastics as corporates search for more environmentally friendly packaging options and regulatory hurdles.
But analysts said the deal largely made sense due to the major cost and scale benefits and synergies.
Analysts at Citi said both companies had leading market positions as plastic packagers but have struggled with organic volume growth.
Cross-selling opportunities of complimentary products could be created.
Unlike paper, glass and metal, plastic packaging was highly fragmented and the merged group would be “the largest global plastic packager by far” with unmatched procurement scale and research and development capabilities.
Each Berry shareholder receives 7.25 Amcor shares, valuing the New York listed stock at
$US73.59, about 10 per cent above Berry’s last traded price.
The combined platform is expected to lift Amcor’s annual sales from about $US14bn (about $US10bn of which comes from flexible packaging and $US3.3bn from rigid) to $US23.9bn, including about $US280m in topline growth synergies.
Half of sales will come from North America, while the remainder will be from Western Europe (about 30 per cent) and Emerging Markets (about 20 per cent).
Flexibles account for about 60 per cent and Containers and Closures the remainder.
The latest acquisition by Amcor continues the trend of industry consolidation and comes after it purchased US plastic packaging maker Bemis for $5.7bn in 2018, creating more dominance as a flexible packaging maker in the US.
The share price lagged after the transaction, but analysts said this was largely driven by the New York Stock Exchange relisting, as Amcor delivered on the promised benefits of the purchase.
At that time, UBS worked for Amcor, while Bemis was advised by Goldman Sachs.
In other aspects of the latest deal, Amcor shareholders will own 63 per cent of the combined group and Berry shareholders the remainder.
It will have $US4.3bn of adjusted annual earnings before interest, tax, depreciation and amortisation, with over $US3bn of cash flow to provide fire power for growth, dividends and further mergers and acquisitions.
The group’s debt level will be reduced over time to under 3 times earnings from 3.3 times.
As earlier reported, Amcor and Berry have flagged the combination will deliver higher expected earnings growth from 10-15 per cent to 13-18 per cent per annum.
Amcor will gain a footprint across 140 countries and strengthen its position in high-growth, high-value categories including healthcare, protein, pet food, liquids, food service and beauty and personal care.
It comes after a period of restructuring for Berry, where it spun off its Health, Hygiene and Specialties Global Nonwovens and Films business under its chief executive Kevin Kwilinski, appointed a year ago.
Other major consumer and industrial sector deals include the Amcor spin off Orora buying Saverglass for $2bn and Treasury Wine Estates buying DAOU for $US900m.
More Coverage
KKR seeks to offload Colonial First State stake
KKR is understood to be creating a data room for at least one prospective trade buyer to consider the $3bn-plus wealth management business, Colonial First State.
Anglo ready to announce winner of coal mine auction
A decision by Anglo American about its Queensland-based coal assets is believed imminent, a week on from when final bids were due.