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Australian packaging giant set for demerger

By: Kate Tilley

November 13, 2013

MELBOURNE, AUSTRALIA – Amcor Ltd., the Australian-based multinational packaging company, is set for a US$2billion demerger and float in December.

Amcor will be split in two and a new company, Orora Ltd., listed on the Australian Securities Exchange on Dec. 18.

Orora will focus on the Australian and New Zealand fiber, glass and beverage can packaging markets, plus packaging distribution in Australia and North America.

Amcor will specialize in flexible and rigid plastic packaging and tobacco packaging for overseas markets.

Amcor Ltd. executive general manager for corporate affairs John Murray said: “Amcor will be a global leader in its market segments and in emerging markets.”

Broker reports suggest the company’s market value is between US$1.5 billion and US$1.6 billion, with debt of US$700 million, making a total enterprise value of US$2.2 billion to US$2.3 billion.

The 67,000 shareholders have been told if the demerger is implemented, they will receive one Orora share for every Amcor share held on that date. Shares have been trading at about A$10.60.

An Australian finance industry commentator, who did not want to be named, told Plastics News: “The market loves the idea of this demerger. There are significant cost saving opportunities in the Orora business that should put it in a good position in years to come.”

Amcor Managing Director and CEO Ken MacKenzie told the company’s annual general meeting last week the best outcome for shareholders is to separate the two businesses, “enabling each to focus on their own growth agendas and strategic priorities.”

“The business has an A$81 million cost improvement opportunity that should underpin earnings growth over the next few years and position Orora well for the next phase of its journey as an independent company,” he said.

He said Amcor post-demerger will have a more focused portfolio with two-thirds of its sales in flexible packaging and one third in rigid plastics.

Amcor’s earnings before interest and tax for the 2013 financial year were US$1.01 billion. That was generated from the three operating businesses: flexibles, rigid plastics and Australasia and packaging distribution.

MacKenzie said the flexibles business had an “excellent year” with profit before interest and tax up 11.9 percent to a record US$813 million.

“This improvement reflects ongoing operating improvements, benefits from acquisitions and continued good growth in emerging markets.”

Return on sales increased from 11.2 percent to 11.6 percent and return on average funds employed was a record 24 percent.

MacKenzie said the rigid plastics business had a “solid year.” Earnings were 5.2 percent higher at US$287 million, and returns improved from 15.5 percent to 16.9 percent.

“Although volumes in North America were adversely impacted by a relatively cool, wet summer, earnings for the region were higher. This increase was driven by strong cost management, operational improvements and growth in the diversified products segment.”

Independent corporate adviser Grant Samuel told daily finance newspaper The Australian Financial Review that the US$2 billion demerger is in shareholders’ best interests, even though Amcor will incur large one-off costs.