Suiza Foods Corp. has agreed to combine its U.S. plastic packaging operations with those of Reid Plastics Inc. The deal will create the second-largest blow molder in North America, according to Plastics News estimates.
Suiza's packaging operations — Franklin Plastics and Plastic Containers Inc. — will be combined with Reid to form Consolidated Container Co. LLC, to be based in Dallas. The new company will have blow molding sales of about $730 million.
Reid is owned by Vestar Capital Partners III LP, a private equity firm that will control Consolidated Container.
Suiza will own 43 percent of the new company, and minority interest shareholders of Franklin Plastics will own 6 percent. Vestar will control 51 percent, and said it will invest $61 million in common equity.
Consolidated Container will assume $135 million of Suiza's debt and pay Suiza $367 million.
Packaging analyst Dan Khoshaba of B.T. Alex Brown in New York said the move should help both Suiza and Vestar. Publicly held Suiza can concentrate on dairy and food products, and in the packaging world, big firms that are focused on a few products gain cost advantages, he noted.
``Whenever you're in a tough business, it's always better to have a very keen focus,'' he said.
Gregg Engles, Suiza chairman and chief executive officer, said, ``After pursuing a consolidation and integration strategy in the plastics container category, it is now time to reap the financial benefits for our shareholders.''
Suiza started its plastic container acquisition spree in June 1997 when it bought Garelick Farms, a dairy and PET and high density polyethylene plastic bottle maker, for $400 million. The name of that operation was changed to Franklin Plastics Inc. Dallas-based Suiza then topped that with its $345 million stock and debt purchase of Continental Can Co. Inc., early in 1998.
Suiza plans to use the cash proceeds of the current transaction to reduce its $900 million debt and possibly to finance future acquisitions in dairy and food. The transaction has been approved by both companies' directors and is to close around July 1.
``This will allow [Consolidated Container] to reach out to a much broader customer base and offer bottles at a lower cost,'' Vestar spokesman Gene Donati said in a telephone interview.
Vestar acquired a controlling interest in Reid in October 1997. Reid, based in Arcadia, Calif., ranked 11th in Plastics News' list of North American blow molders, with estimated annual sales of $220 million. Suiza Packaging Group ranked fourth with blow molding sales of $510 million.
Consolidated Container will have more than 70 manufacturing sites and will provide single-layer HDPE bottles for the dairy, water and fruit drink industries, HDPE and PET multilayer bottles for packaged consumer goods and polycarbonate water bottles. Suiza will be one of its main customers.