US based private equity firm Lone Star has tapped investment bank Macquarie Capital for its $3.4bn buyout proposal for Australian listed packaging company Orora.
Orora, which had a $2.6bn market value at close of trade on Monday when its share price was $1.91, has rejected the $2.55 a share offer that is understood to have landed a few weeks ago.
“The board, together with its advisers, carefully considered the indicative proposal and determined that it is not in the best interest of its shareholders to further engage with Lone Star on the basis of the indicative proposal, which materially undervalues Orora,” it said.
It comes as the UBS-advised company moved forward the delivery of its result for the year to June 30 by one day to August 14, when it plans to share progress on its strategy.
Investors are bracing themselves for bad news linked to weaker glass demand with a destocking in the global spirit market and a US market downturn amid rising inflation.
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 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.
Also looking was Apollo Global Management and One Rock.
The sale process was shelved, and the company started testing interest again, leading to Orora’s acquisition of Saverglass last year.
At the time of Lone Star’s interest, reports suggested it was generating €130m of annual earnings before interest, tax, depreciation and amortisation, projected to grow to up to €190m and Orora said in April Saverglass was expected to deliver EUR84m to EUR88m in EBITDA for fiscal 2024.
Lone Star and Australia
The Texas-based Lone Star invests across real estate, corporate equity and credit and other financial assets and since being established in 1995, it has organised 24 funds with total capital commitments worth $US92bn.
However, it went on to bid for the Australian arm of building materials company Jeld-Wen, which was sold to Platinum Equity for $688m.
A year before its office opened, it bid for GE Capital’s Australian-based loans, but missed out on the $2bn portfolio to Sankaty Advisors, which is now called Bain Capital Credit.
It made an offer for AWE in 2016 and also took out Sino Gas and Energy about six years ago in a $530m takeover bid.
Other targets it has cast its eye over includes retirement village operator Aveo Group, which was purchased by Brookfield for $1.3bn, while in 2019, Lone Star was believed to be assessing an acquisition of Boral, which is the country’s largest building materials provider that had a major presence in the US.
However, a deal never eventuated.
There has also been a suggestion Fletcher Building could be in its wheelhouse.
Lone Star, founded by chairman John Grayken, is known as a private equity firm that typically targets distressed assets and has a particular focus on building materials.
It bought HeidelbergCement, including Hanson’s North American building products business, in 2015 and it later listed the operation on the London Stock Exchange as a company known as Forterra.
It purchased German building materials maker Xella, reportedly for about $US2.2bn.
It also bought the Stark Group, which is the largest retailer and distributor of building materials in the Nordic countries in 2017, for €1.025bn ($1.63bn).
Saverglass and Orora
Orora makes glass and cans for drinks in Australia and in North America, distributes packaging and makes corrugated cardboard.
It had looked at a number of opportunities in the United States, some of which were in packaging distribution before buying Saverglass, which makes bottles for fancy wine and spirits brands in Europe such as Grey Goose Vodka, Hennessy, Caldwell, Maison Mirabeau, Don Julio and Jose Cuervo.
Orora had a $3bn market value at the time of the Saverglass purchase, advised by Citi.
It hoped to capitalise on the booming luxury market and capitalise on its US logistics chain to distribute products and global manufacturing hubs, allowing it to shift capabilities to different locations.
At the time of the deal it raised $1.34bn at $2.70 a share, a 21.3 per cent discount to its last traded share price of $3.43, through Macquarie Capital.
It was a deal equating to 7.7 times €168m of adjusted earnings before interest, tax, depreciation and amortisation for the 2023 financial year.
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