UBS advises Orora on $1.72bn Nippon Paper Industries deal

Orora will continue to hold its Australian bottling business and US operations that include packaging. Picture; AAP

Nippon Paper Industries’ Thursday announcement of a $1.72bn acquisition of Orora’s Australian fibre business has highlighted not just the dominance of Japanese groups in cross-border transactions but also that some of the operations within the country’s top industrial stocks are being grossly undervalued.

Orora’s Australian fibre business sold for what one investor said was a “very good price” and higher than the $3.3bn group’s overall value.

The Japanese paid 11.5 times the division’s earnings before interest, tax, depreciation and amortisation and about $1 per share will be returned to investors. Orora trades at about nine times.

The stock on Wednesday closed at $2.73 and on Thursday rallied more than 17 per cent once the news was announced.

It closed up 12 per cent at $3.06.

There are plenty of other companies in the industrial space where their sum of the parts is worth more than the group as a whole — two companies that remain under the spotlight are Boral and Fletcher Building.

Some believe private equity or trade groups could be looking at Fletcher’s for a break-up.

The building supplies business Tradelink within Fletcher is thought to be attractive to conglomerate Wesfarmers, while other New Zealand assets could be lucrative.

Speculation has mounted in the past that the construction and building materials business could be eager to sell its Australian division, much of which it inherited from its Crane acquisition in 2007 that included operations specialising in business lines such as plumbing supplies.

However, it was not thought a buyer existed who was willing to pay for the assets.

Recently appointed chief executive Ross Taylor has also been eager to retain the Australian operations.

Some believe more value could be extracted from Boral by splitting the US business from the Australian operations of the country’s largest building materials provider.

Lendlease has also been circled by a Japanese consortium, which is understood to include Mitusi, for a potential break up, according to sources, despite denials from both the Japanese conglomerate and the listed real estate developer and builder.

In the latest instance, investment bank UBS advised Orora while Nippon Paper was advised by Macquarie Capital.

The deal involves synergies between both companies and it is the second major transaction in the industrial space in recent months involving a Japanese firm advised by Macquarie Capital.

So far this year, cross border M&A deals out of Japan into Australia this year have amounted to more than $20bn.

This compares to US and China which amounts to $4bn.

Following this deal, Orora will continue to hold its Australian bottling business and US operations that include packaging.