Several large film extrusion companies and private equity firms, including the majority owner of Pliant Corp., are seriously considering buying Tyco International Ltd.'s blown film operations, according to several sources familiar with the process.
Five sources said last week that officials with New York-based J.P. Morgan Partners have toured Tyco during the past several weeks and are lining up financing to make a bid. J.P. Morgan owns most of Schaumburg, Ill.-based Pliant, a maker of commodity and specialty films that competes with Tyco in some areas.
Other competitors that sources said have toured Tyco facilities include Amcor Ltd. and Sealed Air Corp.
Melbourne, Australia-based Amcor has a small flexible packaging operation in North America but is a major player in the European market. Saddle Brook, N.J.-based Sealed Air primarily makes protective and food packaging, the latter through its Cryovac subsidiary.
However, Amcor and Sealed Air may not submit bids, and J.P. Morgan appears to be the more serious of the three, sources said.
Several equity groups, working independently of film competitors, also have expressed an interest and have toured facilities, according to sources. Bids are not expected for another four to six weeks, according to those sources.
Tyco announced plans May 3 to sell its plastics and adhesives group. The business is huge, with sales of $1.74 billion last year, but a small part of the $40.15 billion total at the Pembroke, Bermuda-based company. In addition to film, the plastics and adhesives group makes injection molded garment hangers and duct tape.
At first, Tyco officials said that the unit would be sold as one piece. But now Tyco has been shopping the businesses separately, according to Tyco officials. Several companies are expected to bid for the hanger business, managed under the A&E Products name, sources said.
The film business is the featured company for sale. It recorded more than $1 billion in sales last year and includes pallet stretch films, agricultural films, trash bags, can liners, shrink bundling film and retail sheeting. The company is a North American leader in several of those categories, including stretch and agricultural film.
Tyco officials would not comment on speculation about bidders for its film business, said spokeswoman Gwen Fisher. She added that the divestiture process was moving forward but nothing had yet progressed beyond the point of talking to interested parties.
According to several sources, J.P. Morgan is considering buying Tyco's film business and placing it as a separate company from Pliant. Then during the next 18 months, Pliant's operations gradually would be integrated with Tyco's, with the possibility of creating one company, sources said.
Pliant may not have the funds itself to purchase Tyco's film business.
Pliant is smaller than Tyco's film unit, recording $968.7 million in sales last year. And Pliant has been hampered for several years by weaker-than-expected earnings and stretched by high debt, said Liley Mehta, a packaging analyst with New York-based credit firm Standard & Poor's.
``At this point, in terms of the potential for an acquisition, Pliant has no capacity to take on additional debt,'' said Mehta, who had no knowledge of J.P. Morgan's interest in Tyco. ``They still have work to do to achieve a turnaround and be out of the woods on the operations front.''
However, Pliant also is a major producer of stretch and shrink film and has worked to improve earnings during the past year under new Chief Executive Officer Harold Bevis.
One source close to a possible deal said a transaction would be good to take out extra capacity in the film business and provide a stronger company foundation to negotiate for lower resin prices. Another film company executive added that a purchase by J.P. Morgan would create an influential industry leader that could help lower resin costs across-the-board for both large and small film producers.
Officials with J.P. Morgan could not be reached for comment before deadline, and a Pliant official said the company would not comment on rumors or speculation.
Other bidders could jump into the picture by August, sources said. And the fact that many companies have toured Tyco's plants does not mean that a sale is imminent, said David Solomon, managing director with Goldsmith Agio Helms in New York.
``It's premature to say that someone's going after it,'' he said. ``Usually, after companies walk through a plant, it takes three to four weeks of due diligence before bids go out.''
