Richards Packaging Inc. is transforming itself from a private company into an income trust fund listed on the Toronto Stock Exchange.
Mississauga, Ontario-based Richards filed a final prospectus for the trust fund March 30 and expects to complete the offering April 7. The company, a blow molder whose main business is distributing rigid packaging, plans to offer about 8.6 million trust units at C$10 (US$7.65) per unit.
Companies typically convert to income trust funds so that the owners can get monetary value for their interest in the firm without some of the tax hassles associated with going public, said packaging analyst Raymond Lui of Raymond James Ltd. in Vancouver, British Columbia.
Richards claims it is the largest rigid packaging distributor in Canada and among the top three in North America. About 22 percent of its sales last year were derived from its own blow molded containers, the company said in its prospectus. The firm operates blow molding plants in Toronto and Tacoma, Wash., and is half owner of a blow molding plant in Langley, British Columbia. Richards and the joint venture run more than 40 blow molding machines.
Richards' 2003 total sales were C$163.1 million (US$124.7 million) and net profit was C$5.1 million (US$3.9 million). About a third of sales were from rigid plastic containers made by Richards and supplier firms. Richards also distributes glass containers, plastic and metal closures and pharmaceutical specialties.
An investor group bought Richards in 2002 and refinanced the company. CIBC World Markets Inc. of Toronto is leading an underwriter group offering units in Richards Packaging Income Fund. The fund will issue about 8.6 million units for net proceeds of about C$73.6 million (US$56.3 million) after various expenses associated with the issue.
Richards said it will use proceeds to expand the company. Richards' owners will retain a 20 percent interest in the fund, most of which will be held by Richards Chief Executive Officer Gerry Glynn.
Richards focuses on regional service from its 15 locations in North America. Equity analyst Brian Purdy said that strategy should help insulate it from offshore competition in commodity packaging.
The company boasts more than 6,000 small and medium customers to whom it supplies more than 5,000 types of containers for food, beverages, cosmetics, specialty chemicals and pharmaceuticals. Richards said the C$3 billion (US$2.3 billion) rigid packaging distribution market in North America is fragmented with many suppliers tied to regional customers.
The company's blow molding business, however, is exposed to swings in plastics pricing, which could affect the monthly payouts on the trust units, Purdy said in a telephone interview from Acumen Capital Partners in Calgary, Alberta.
Income trust payouts often outperform interest-bearing investments, making them popular among Canadians investing for retirement. If Richards had been an income trust fund last year, it would have been able to pay out a total of C$1.025 (US$7.84) per unit, the firm claimed in its prospectus. It predicts a payout of 6.26 Canadian cents (4.79 U.S. cents) per unit for the period of April 7-30.