An air of intrigue surrounds packaging giant Owens-Illinois Inc. with the announcement of the sale of its specialty closures business and the intention of its largest shareholder group to sell its ownership stake.
For the former, officials with Toledo, Ohio-based O-I said they have reached an agreement in principle to sell assets related to the production of plastic trigger sprayers and finger-pump closures. The sale, expected to close in the fourth quarter, will bring O-I proceeds of $50 million.
The company declined to name the buyer, said spokeswoman Sara Theis. The sale agreement promised confidentiality, at least until after the sale closes, Theis said.
For the latter, O-I's main shareholder, gargantuan equity firm Kravis Kohlberg Roberts & Co., has offered to sell its 36 million shares of common stock in the company, according to a registration statement filed Oct. 22. KKR owns 24.4 percent of O-I, with the bulk of the remainder publicly traded on the New York Stock Exchange.
KKR did not reveal a sale time line or potential buyers. In an Oct. 22 conference call with analysts, Thomas Young, O-I executive vice president and chief financial officer, said that while O-I officials could not speak for KKR, the move is viewed as a matter of contingency planning on the equity firm's part and nothing more significant.
``I don't think it signals something one way or the other,'' Young said. ``If they have the opportunity to sell, they can get to market fairly quickly vs. having unregistered shares and having to go through the registration process.''
A spokesman for KKR declined comment. KKR first invested in O-I in 1987 and holds four seats on the company's board.
Whether KKR has further intentions beyond the mere formality of a filing is a matter of debate among analysts and other O-I investors. Lehman Bros. analyst Ghansham Panjabi, who follows O-I, echoed Young's words that the filing is a precaution taken now for when market conditions improve.
``It would be hard for them to find a buyer overnight, and it gives them time to see how market conditions will do,'' said Panjabi, based in New York. ``But they're in there to make money. It just means that if they want to sell, they can do it immediately.''
But Thomas Blaige, chief executive officer of investment bank Thomas Blaige & Co. LLC in Chicago, said a filing usually means an equity firm is trolling for buyers. KKR has owned its share in O-I for 16 years, much longer than the five to seven years that an equity firm typically invests in a company, he said.
One outside O-I investor, Alexander Roepers, said O-I would be better off if KKR sold out. Voicing his complaint during the conference call, Roepers said KKR takes an annual $2 million consulting fee from O-I while also owning about a quarter of the company.
He also questioned whether O-I would be better served with more independent, outside directors. While KKR owns less than 25 percent of O-I, the company has 40 percent of the board positions, he said.
``I'd rather see them sell their shares and get out,'' said Roepers, president of Atlantic Investment Management Inc. in New York.
The sale of the closures business is less fiery but still shrouded in some mystery. The company said it will take a charge of $37.4 million, or $23.4 million after taxes, during the third quarter for the sale of its specialty closure assets. The sale represents all of O-I's assets for both its injection molded trigger sprayer and finger-pump product lines, Theis said.
The company did not provide details on affected employees or plant locations, most of which are in the United States, Theis said.
The trigger sprayers are used with many household products, while the finger pumps more generally are used for cosmetic and pharmaceutical lotions and creams.
The products are part of a larger injection molded closures business at O-I that includes other dispensing and tamper-evident closures. A major portion of its closures business came in late 1992 with the acquisition of Specialty Products Inc. of Richmond, Va. Specialty Products, a large maker of trigger sprayers and finger pumps, had seven plants and sales of $100 million.
O-I, also a large blow molder of plastic bottles, recorded sales of about $500 million in its injection molding operations last year.
Trigger sprayers and finger pumps are made by a number of other molders in North America, some of which could be interested in O-I's operation. That list includes Saint Gobain Calmar Inc., ContinentalAFA Dispensing Co. and AptarGroup Inc.
The expected sale could lead to other transactions by O-I later this year, Panjabi said. The company is suffering through a difficult earnings year and could use the cash for other operations, he said.
During the conference call, Young said further divestiture of nonstrategic assets and plant consolidations will be considered. As with many of its competitors, O-I wants to reduce costs as a means to enhance earnings.
``Given our productivity increases, typically we see an opportunity to maintain volumes with fewer plants,'' he added.