Bemis Co. Inc. has made a bold step in its continued growth outside North America by purchasing Dixie Toga SA, one of Brazil's largest packaging companies.
Before the Jan. 5 deal, Minneapolis-based Bemis only had a minor presence in Brazil, jointly operating two film extrusion plants with Dixie Toga in a partnership called Itap/Bemis Ltda.
Now, Bemis will become the owner of a South American company with 11 plants and annual sales topping $300 million.
Bemis already is the largest film and sheet extruder in North America, according to Plastics News rankings. The firm recorded $2.1 billion in relevant 2003 sales.
``We [now] have a significant stake as a leading packaging company both in North and South America,'' Bemis President and Chief Executive Officer Jeffrey Curler said in a Jan. 5 conference call with analysts.
Bemis paid about $250 million for all the common stock and 43 percent of the nonvoting preferred stock of Dixie Toga, and took on $35 million of Dixie Toga's debt, said Bemis investor-relations spokeswoman Melanie Miller.
Bemis envisions opportunities down south. The South American economy is growing faster than North America's, and flexible packaging is growing more than 5 percent a year there, Curler said. And Brazil is working through some of the currency issues that plagued the economy a few years ago, he added.
``It looks like [Brazil] has some stability in government now and is taking the right kind of approach with the country,'' Curler said in a telephone interview. ``It's a country with over 160 million people there now. There is a lot of middle-class growth, and that is good for packaging.''
In addition, regulatory changes in Brazil have forced retailers to package red meat in shrink bags instead of selling it fresh and unbundled, leading to double-digit growth in shrink wrap, he said. The Itap/Bemis venture was preparing to open a new barrier-film plant later this year in Rondonopolis, Brazil, to serve that market; those plans will go forward after the acquisition, he added.
Flexible packaging and the Itap/Bemis venture only represent about one-third of the sales for the Sao Paulo-based Dixie Toga, Curler said. The rest is broken into thermoformed and injection molded food containers, disposable cups and plates, folding cartons, printed beverage and beer-bottle labels, and a laminated toothpaste-tube joint venture with Espoo, Finland-based HuhtamÃ¤ki Oyj. Outside of labels, Bemis has not made any of those products.
Curler said Bemis has no plans to sell any of those holdings, including Dixie Toga's plastic food containers, used for butter, yogurt and other food products and made from both polystyrene and polypropylene. That business represents about 20 percent of Dixie Toga's sales.
``They have great penetration in cartons and rigid packaging,'' he said. ``We have positions with a lot of those same customers where we're selling flexible packaging. Our No. 1 [plan] is to continue to marry those products together.''
Bemis also hopes to work more closely with HuhtamÃ¤ki, Curler said. HuhtamÃ¤ki's venture with Dixie Toga, called Laminor, makes barrier films designed to increase the shelf life of toothpaste tubes. The companies hope to develop film technology for those products jointly.
Analysts said the acquisition's risk to Bemis is small. While currency volatility in South America is an issue, the region has been a growth market, said Lily Mehta, packaging analyst with New York credit rating firm Standard & Poor's. The sale expands Bemis' geographic base and brings more products with attractive profit margins, she said.
``They have to manage [currency fluctuations] with hedging mechanisms,'' she said. ``But that affects all companies there.''
With the deal, a quarter of Bemis' sales will come from outside North America, Miller said.
The company has been adding significantly to its global portfolio. In Europe, Bemis had sales of $18 million six years ago and today records about $300 million, Miller said. In Latin America, the company purchased a majority stake in a Mexican packaging plant in May.
Bemis steadily has increased its stake in the Dixie Toga venture from one-third to 45 percent since the companies started working together in 1998. The companies already know each other's operations and can work well together, Miller said.
The Asia-Pacific region remains an area Bemis has not tapped as significantly, Curler said. While the company will look for opportunities there, it remains cautious, he said.
``We don't have a total direction in Asia-Pacific,'' Curler said. ``We need to figure that out in the near-distant future. We only go to places where we can make money, and we're not sure how to do that yet in the [Asia-Pacific] region.''