US buyout suggests Orora may be the next target

In the US, Orora’s core business is the distribution of boxes and plastic packaging. Picture: iStock

The $3bn listed packaging company Orora has been scanning the US market for acquisition opportunities, and one deal that might be in its sights is the $US2.3bn buyout proposal by Clayton Dubilier and Rice for Veritiv.

Veritiv provides packaging products for a range of industries, like Orora’s operations in the US. Its other operations involve printing and facility management services.

The deal is interesting for two reasons. First, the implied multiple is low at six times earnings before interest, tax, depreciation and amortisation, so a similar acquisition for Orora is unlikely to be too costly. Second, it could mean that Orora’s US division gets some attention, since the sector is of interest to private equity.

Veritiv’s major shareholder is hedge fund Baupost with 25 per cent.

Earlier this year, Orora was said to be considering US acquisition opportunities, and no doubt would have run the ruler over Veritiv. But there’s no sign it is about to enter a bidding war with private equity.

Orora is seeking companies with good technology or design and an opportunity for geographic expansion.

Orora manufactures most of Australia’s wine bottles and cans for drinks. It is in a duopoly in Australia with Visy, which makes deals here difficult, but in the US its core business is the distribution of boxes and plastic packaging. It also manufactures corrugated board in the US and carries out contract manufacturing, which is easier to do in a bigger market.

Working in Orora’s favour are higher debt costs, which means private equity is not as competitive because they typically favour higher debt to fund deals.

Orora’s share price has rallied this year. Last week it reported an 8.5 per cent lift in its underlying net profit to $203m.

It has net debt of $774m – twice its earnings – and has increased its dividends 6.1 per cent to 17.5c.