The deal that the flexible packaging industry has been waiting for is moving forward, as Apollo Management LP of New York has agreed to pay $975 million in cash for Tyco's Plastics, Adhesives and Ludlow Coated Products businesses.
The companies announced the sale Dec. 20. The deal, in which Apollo will acquire Tyco's Plastics, Adhesives and Ludlow Coated Products businesses, is subject to regulatory approval but is expected to close in early 2006, Apollo officials said in a news release. The sale does not include Tyco's A&E Products Group, which makes clothes hangers.
That unit will be sold separately, but Pembroke, Bermuda-based Tyco will not provide a time frame on that sale, a spokeswoman said by telephone Dec. 21.
``We are excited to be purchasing Tyco's plastics and adhesives business, a franchise asset with leadership positions in a diverse group of attractive end markets,'' said Joshua Harris, a founding partner of Apollo.
``We view the company as an excellent platform and look forward to the opportunity to invest alongside a strong management team with whom we will work to grow the business,'' he said.
Terry Sutter, who has been president of the unit, will become chief executive officer to lead the current management team. Apollo officials, reached by telephone Dec. 21, would not comment on their strategy for the business beyond the news release. Sutter did not return a call seeking comment before deadline.
Apollo's purchase puts a period at the end of a proverbial run-on sentence for what amounts to the largest film transaction of 2005. Tyco first tried to sell the plastics operations in early 2002 under different management that included ousted Chairman Dennis Kozlowski. Interested parties that had toured the business were waiting for detailed audited financial information when Tyco did an about-face and pulled the unit off the market.
Sources at that time familiar with Tyco said equity groups were nervous about buying the plastics business because of concerns about Tyco's accounting practices.
``It appeared the financial buyers were having a difficult time getting audited financial information,'' one industry source said by telephone Dec. 21. ``The ultimate bid most likely reflected a discount for that risk in having less-than-perfect financials.''
The numbers themselves tell the story, sources said. Apollo's purchase price is a percentage of what officials originally wanted for the business in 2002, when the asking price was $3 billion to $4 billion, or 1.5 times revenue. Adjusting for A&E Products Group, which was included in the 2002 sales figure, that left the remaining businesses with a sales tag of $2.2 billion, according to Blaige & Co. LLC of Chicago.
The unit went through massive restructuring, as Tyco closed plants and slashed jobs starting in 2003.
Tyco CEO Ed Breen put the unit up for sale again in May, with a price tag of $1.37 billion, which was less than one times sales. Many industry officials predicted the units would be separated for sale.
During the past few weeks, industry officials had predicted that parts of the business would go to Sealed Air Corp. and that the stretch film business, in particular, would go to Atlantis Plastics Inc., in a purchase led by Blackstone Group of New York. Blackstone had required audited financials again, according to one industry source.
Still, despite being the largest film deal of 2005, the valuation on Tyco appears to be significantly less than other mega film deals in recent years, including the sale of Pechiney Group to Alcan Inc. Pechiney's packaging business was of a similar size to Tyco and the purported valuation was estimated at 1.5 times the firm's sales. The sale of Pliant Corp. to JP Morgan Chase & Co. and the sale of KlÃ¶ckner Pentaplast to Cinven Ltd. of London were both similar in size to Tyco.
``The economics and valuations vary drastically and all the past five deals appeared to be significantly better than what Tyco got,'' one industry source said.
Apollo Management has other investments in plastics, including the world's largest thermoset maker, Hexion Specialty Chemicals Inc. of Columbus, Ohio, which employs 7,000 with 86 plants in 18 countries. Hexion formed earlier this year when Borden Chemical Inc. announced it was merging with Resolution Performance Products LLC and Resolution Specialty Materials LLC of Houston. Borden had purchased Bakelite AG in April, which also was merged into Hexion.
Apollo also has been an investor in AEP Industries Inc. of South Hackensack, N.J., Blaige said.
Tyco's film business had sales of $1.7 billion in 2005. The operations include 7,100 employees and 43 plants in five countries, making products that include trash bags, plastic sheeting and duct tape.