Orora makes progress on $1.5bn OPS unit sale with private equity a likely buyer

Orora Packaging Solutions may attract a private equity bid for as much as $1.5bn. Picture: iStock

Private equity firms are being touted as the logical buyers for the US-based Orora Packaging Solutions business that sources believe could be worth between $1bn and $1.5bn.

With UBS and Jarden on the ticket for the sale of the business, Orora made it known at its full year result briefing on Wednesday that it was reasonably progressed with a potential sale.

Last year, the Morgan Stanley-advised packaging distributor Veritiv Corporation was purchased by Clayton, Dubilier & Rice, advised by Goldman Sachs, so it may be a buyer.

Among other major global private equity funds that invest in the US packaging industry are Kohlberg Kravis Roberts, Apollo Global Management, The Carlyle Group, Bain Capital, PAI Partners, Paine Schwartz, Abror Investments, Champlain Financial, Riverside and L Catterton.

Some of the large shareholders in Orora are supportive of the move, given that proceeds could offer some to relief to Orora’s balance sheet, stretched after its $2.1bn Saverglass acquisition last year.

Yet as always, it comes down to the numbers, with a strong price needed to justify parting with a business that has an attractive return on equity, higher than other parts.

The unit has staged a solid performance under the leadership of Orora boss Brian Lowe, so if the price is not right, shareholders will likely be comfortable for it to be retained.

Given it was generating about $165m of annual earnings before interest and tax, expectations are that it would surely achieve a price of at least $1bn, which is about a third of Orora’s market value, and analysts at Citi expect gross proceeds of at least $1.5bn, largely equivalent to the current net debt balance.

Veritiv last year sold for about six times EBITDA.

OPS is a packaging and visual communications solutions provider, and corrugated manufacturer, serving a broad range of industries including agriculture, technology, food and beverage, pharmaceutical and automotive.

The business focuses heavily on customer service and value-added services and is best known for delivering customised solutions.

Shareholders were bracing for the worst on Wednesday and potentially an equity raising when Orora was to report its results, but were surprised on the upside with results beating some analyst estimates.

It posted $616m of annual EBITDA and a 0.2 per cent net profit increase to $185.2m.

Shares rallied 5 per cent as a result.

Orora rejected a $2.55 a share offer from Lone Star Funds received about 10 days ago and disclosed to the market by the Citi-advised company this week.

Citi worked on Orora’s Saverglass acquisition and equity raising last year.

It’s widely accepted now that Orora paid too much for Saverglass, but the Australian-listed packaging company had been looking for an opportunity for a long time to position the company for growth and it was a competitive sale process, so there’s some sympathy among shareholders for the management team.

Meanwhile, there’s a growing view that Lone Star Funds could soon turn its attention to Fletcher Building if it hasn’t already, given it is right in its wheel house – a distressed business operating in the building materials industry.

Fletcher has appointed Will Wright, its former group strategy general manager, as its chief financial officer.

The company sold its Tradelink unit for $170m, but it is understood that several years ago, it rejected an offer from private equity that valued the unit at about $400m.