Pactiv Corp. is continuing its major thrust into amorphous PET by agreeing to purchase the plastic packaging assets of Rock-Tenn Co.
Rock-Tenn's two plastics manufacturing facilities, in Conyers, Ga., and Franklin Park. Ill., are among North America's largest thermoformers of APET containers, said James Throne, president of thermoforming consulting firm Sherwood Technologies Inc. of Dunedin, Fla.
``Rock-Tenn has a long history in the business,'' Throne said Sept. 25 ``Against competing materials, APET has really shined in the last few years, and a lot of companies want to start using it.''
Pactiv, based in Lake Forest, Ill., carved its first piece of the APET thermoforming segment last year when it purchased Winkler Forming Inc. of Santa Fe Springs, Calif. APET is popular for containers on supermarket refrigerator racks, especially previously frozen items.
Last year, Richard Wambold, Pactiv chairman and chief executive officer, said APET containers were growing at a compounded annual rate of 6 percent, spiking faster than containers made of oriented polystyrene, its main competitor. That led Pactiv to pay $72.5 million to buy Winkler and take over its two plants.
The firm paid a little less this time - $60 million - for the Rock-Tenn business. The two plants employ about 350. The Rock-Tenn operations also make containers from polypropylene, another low-cost material gaining some ground against OPS sheet. The deal is set to close in October.
For Norcross, Ga.-based Rock-Tenn and Pactiv, both multibillion-dollar packaging suppliers, the deal represents a small dent in overall operations. ``For Pactiv, it's sort of a gnat on an elephant,'' said Throne. Pactiv expects about $3 billion in sales this year.
Rock-Tenn has been paying less attention to its once-prominent plastics business, according to several outside analysts, choosing to focus instead on its core paperboard and folding-carton operations. The company decided in May to sell the plastics plants, even though they were in good shape, said Rock-Tenn spokesman Steven Voorhees.
``But it got to the point where we had to grow it and make it bigger, or focus on other areas of the company,'' Voorhees said. ``Pactiv is in a better overall competitive position in the [thermoforming] business to grow those operations.''
APET packaging is used for confectionery and fresh-cut produce, providing cake domes and fruit lids for products in refrigerator cases, he said. It also has a growing presence in thermoformed trays for case-ready meat, Voorhees said.
The material has some advantages over OPS, both in toughness at low temperatures and its resistance to cracking, Throne said. The material, also cheaper than OPS, is considered slightly lower-end than OPS for shine and luster, he added. APET also has some processing challenges.
``It's more difficult to thermoform and there can be a problem with streaking,'' Throne said. ``But APET has been the growth leader over the past several years in the packaging business. PP may ultimately inflict some damage, but not now.''
Other thermoformers have made strong impressions in the APET market, including Fabri-Kal Corp. of Kalamazoo, Mich., and Alcoa Inc., which bought the assets of the former Ivex Packaging Corp. last year.
Pactiv is North America's largest thermoformer, with relevant sales of $1.17 billion in 2002, according to Plastics News rankings.
The company has a strong balance sheet, generating about $200 million to $250 million annually in free cash flow. That makes Pactiv a likely candidate to pursue other acquisitions, according to Ghansham Panjabi, an equity analyst with New York-based Lehman Bros.
``They have to allocate the funds somewhere,'' Panjabi said. ``They are pretty selective [about] who they acquire, but they need scale. They'll be in a better position for resin buying the larger they get.''
A Pactiv spokeswoman was unavailable for comment. But in a Sept. 18 speech before the Banc of America Securities annual conference in New York, Wambold said Pactiv will continue to look for acquisitions that are smart and add to existing product lines.
``We've performed well in a pretty mediocre environment,'' Wambold said. ``We should get some of the benefits now of a rising tide.''