Anthony Pratt’s Visy will spend $500m to make better beer bottles

Visy paid $733m for Australia’s biggest beer bottle maker and will spend $500m more to make lighter, cheaper bottles.

Anthony Pratt in front of a wall of plastic bottles at the Visy office in Melbourne. Picture: Stuart McEvoy/The Australian.

Fresh from clinching the biggest deal of his career, billionaire Anthony Pratt will spend another $500m making Australia’s beer bottles lighter and more recycling-friendly in a big bet on a local manufacturing future.

Mr Pratt’s giant cardboard box manufacturing and recycling business, Visy, in mid-July won the race to buy the Australasian assets of glassmaker Owens-Illinois (O-I). The $1bn deal, finalised on Friday afternoon, adds $800m revenue to the Pratt family empire and brings with it a 90 per cent share of the beer bottle manufacturing market.

Is his first interview since the deal, Mr Pratt revealed Visy would outlay another $500m over the next 10 years to increase the recycled components of the bottles and make them considerably lighter to save on transportation costs. He would also quickly upgrade the management processes and technology used at O-I’s seven factories around Australia.

He said the COVID-19 pandemic had highlighted the need for Australia to be self-sufficient, a major driver in his pursuit of the O-I deal, which is being funded by cash and borrowings from Westpac and other banks, and is the biggest in Visy’s 72-year history.

“Manufacturing has never been more important in Australia in light of the coronavirus as the world deglobalises, particularly food manufacturing. And Australia ranks last in the OECD for self-sufficiency in manufacturing.

“So this O-I deal is an important milestone for us. I was very pleased that we were able to continue to invest in Australia — it’s a great country to invest in. We are committed and this very much shows that. Glass has a history of thousands of years and we are dealing in the real economy here, as opposed to the casino that is the sharemarket. These are real assets with real products and real customers.”

Mr Pratt has been locked down in Melbourne since the pandemic struck in mid-March.

He said Visy had been able to keep its factories open without major disruption, with every employee’s temperature checked daily.

The pandemic has also been good for business, with home deliveries of food and other goods — all packaged in cardboard boxes — surging in Australia and the US. Mr Pratt hopes beer deliveries to home will also keep rising.

Visy’s latest deal also adds earnings before interest, tax, depreciation and amortisation of up to $140m to Visy’s bottom line. The Pratt family is paying $733m for the business, with the remaining value of the transaction made up of $214m that property firm Charter Hall will pay for O-I sites under a sale and leaseback agreement.

The deal also increases Visy’s workforce in Australia and New Zealand to about 7200 and brings with it plenty of efficiency and modernisation opportunities.

Mr Pratt, Australia’s richest person, owns Visy with sisters Heloise Pratt and Fiona Geminder and he has sole ownership of the US-based Pratt Industries.

Visy beat out interest from private equity players such as Pacific Equity Partners to win the bid, having been close to clinching the deal at the start of 2020 before COVID-19 hit.

Mr Pratt said that may have been beneficial, though he warned it was unknown how long the pandemic would continue to affect the economy and also noted the privately owned business chose not to spend tens of millions on advisers for the transaction.

“It slowed it down for a lot of other bidders, but let me be frank: we are in uncharted waters and while we are very grateful no one knows if it is a six-inch puddle or a six-mile puddle. But I would say that on a balance the circumstances have come together for us.

“Westpac and a few other lenders have been very supportive. It is partly cash and debt and there may be super fund involvement in the future. But we did the deal ourselves. We were self-advised. My sisters are shareholders in the business, and they have been fantastic.”

Sustainability

Mr Pratt said Visy would double the recycling rate per glass bottle from 33 per cent to 66 per cent, upgrading the technology used at O-I plants in the glass beneficiation process that sorts, cleans and crushes used bottles for reprocessing.

Visy will also improve processes that will allow it to make the glass lighter.

“That is good for all sorts of reasons, from occupational health and safety for people having to drag the glass around, but also the cost of beer on the truck is going to be less because it tends to be based on weight. So it reduced the cost per bottle for our customers.

“It is similar to what we have done in corrugated boxes over the years. All of which is under the heading of sustainability.”

There is also scope to improve management processes O-I.

“A lot of customers have been buying more bottles from overseas in the past 10 years partly because of old management systems at O-I,” Mr Pratt said.

“They were handwriting their schedules in journals instead of computerising it and shipping bottles between their seven factories when they would run out in one place.

“We will have a more customer-centric approach. And I think there are lot of logistical synergies too. We truck a lot of cardboard from place to place, they truck a lot bottles. So there’s a lot of efficiencies (to be gained).

Mr Pratt said Visy’s revenue in June was up about 6 per cent compared to the same month in 2019, despite the pandemic, and Pratt Industries’ performance in the US has been even better.

“Online (buying) over there has gone absolutely haywire. Online is a much bigger deal in America — you’ve got Amazons and Walmarts as well as all the ­direct-to-consumer companies. Then we do a lot of pizza boxes as well, which is always online.

“We are very fortunate on the two fronts. About 80 per cent of our manufacturing goes on bottles, cans and bottles supplied to the food industry, and that will be more due to this acquisition.

“Then online retail has grown from $US4bn per month to $US8bn per month, and that has been spurred by the coronavirus.”