Taking advantage of a so-called shotgun sales clause, Amcor Ltd. will sell its majority stake in the White Cap LLC closures joint venture to partner with Silgan Holdings Inc.
Melbourne, Australia-based Amcor initiated the deal, which according to the agreement must close by early April. Amcor acquired a 65 percent share of White Cap in July 2001 when it acquired the plastics business of Schmalbach-Lubeca AG of Ratingen, Germany. That deal solidified Amcor's position as the world's top PET blow molder.
Observers expect Amcor to use the US$125 million it will gain in the sale to buy more packaging operations, most likely in the flexible side of the market.
``They're definitely one of the most aggressive companies in packaging,'' said Ghansham Panjabi, an equity analyst with New York-based Lehman Bros. ``The [closures] business is a commodity operation and does not offer great margins. There might be more value to Amcor to expand in other areas.''
Panjabi does not expect Amcor to use the capital merely to retire debt. The company has talked about increasing its holdings in flexible packaging, where it has limited North American operations, or expanding its PET business.
Amcor also has a 50-50 joint venture with Bericap Group of Dijon, France, to make closures in North America. In a Jan. 2 news release, Amcor managing director Russell Jones said the Bericap venture already provides a solid platform Amcor needs to expand in plastic closures.
In an interview with Melbourne newspaper The Age, Jones spoke about the company's next expansion objective.
``If you look at flexibles, we are strong in Australia, we've got two plants in China, a leadership position in Europe and one small plant in the U.S. Ideally, if an opportunity presented in North America we would like to do that,'' he said.
Prior to July 2001, White Cap was a solely owned unit of Schmalbach. Just before the Amcor/Schmalbach deal, however, White Cap became a joint venture. Schmalbach and Silgan each contributed closure plants to the Downers Grove, Ill.-based operation: Schmalbach gave plants in Chicago and Champaign, Ill.; Hazleton, Pa.; Athens, Ga.; and Mexico City; while Stamford, Conn.-based Silgan contributed plants in Evansville and Richmond, Ind.
The Champaign and Athens plants are dedicated to plastic closures.
Under a shotgun arrangement, either Amcor or Silgan had the opportunity to buy out of the White Cap venture. Amcor will receive about $125 million from Stamford, Conn.-based Silgan: $37.1 million in equity and $88 million to retire debt on Amcor's balance sheet.
White Cap, a maker of both metal and plastic closures, has been restructuring since the formation of the joint venture. Last year the company closed a metal closures plant. The venture lost money for the first three quarters of 2002.
Still, Silgan expects White Cap to contribute positive earnings numbers and generate significant cost savings this year, said Silgan Chief Financial Officer Anthony Allott. The business also is consistent with both Silgan's packaging strategy and its work with existing customers, Allott said. The company has significant manufacturing in both metal and plastic containers.
``The business has a very strong position in metal and plastic closures,'' Allott said. ``Most of the restructuring is behind us, and the benefits will start to show in 2003.''
Amcor officials were unavailable for comment. But Jones said in the news release that White Cap was in the midst of significant restructuring that would require significant effort. Amcor decided to opt out of that work, he said.
White Cap employs about 1,500 and recorded 2002 sales of roughly $250 million. The company injection molds closures for products including isotonic juices and food jars.
Silgan will operate the company as part of its food container business and eventually change White Cap's name, Allott said.
Under terms of the agreement, Amcor is prohibited from manufacturing metal, plastic and composite vacuum-seal closures and certain other closures for the food and beverage market until July 2006. Amcor's Bericap venture makes nonvacuum closures for such markets as bottled water, soft drinks and industrial products.
Silgan ranked ninth among North American blow molders with relevant sales of $441 million in 2001. Amcor PET Packaging, the company's North American container operation, ranked second with $1.1 billion in blow molding sales.
Amcor Closures, based in Mississauga, Ontario, recorded about $500 million in sales during 2002, including those from White Cap.
Silgan's stock price was up about 5 percent to $26 a share on Jan. 3, with heavier volumes reported.