Alcoa Inc. of Pittsburgh is looking to offload its packaging and consumer businesses, the $3.2 billion segment that includes Closure Systems International and Reynolds Food Packaging.
According to one analyst, the assets represent the single biggest opportunity for consolidation in the plastic packaging sector in more than a decade. The assets could fetch as much as 12 times depressed 2006 earnings before interest, taxes, depreciation and amortization.
The assets include plastic wraps and bags, thermoformed containers and extruded plastic sheet and film. Alcoa's flexible packaging assets include pouch, blister packaging and unitizing films. Officials expect to have the review finished by the end of 2007.
``While the assets may not make collective sense for any one of our individual packaging companies [such as] Pactiv, Sealed Air [or] Bemis, our view is that the assets are likely extractable, with the closures and consumer businesses being the crown jewels,'' said Ghansham Panjabi, an analyst with New York-based Wachovia Capital Markets LLC.
``A private equity purchase could be followed by an asset carve-up,'' he said.
One other source said it's likely the deal at least will fetch eight to 10 times EBITDA. In any case, the higher the price, the less likely it will be picked up by a single competitor.
``It looks like they're going to get a good price,'' the source said. ``If it's a $3 billion deal, there are not a lot of strategics that can buy that.''
Alcoa has been making changes in the segment especially during the past year, with restructuring that eliminated 440 jobs. In North America, the Reynolds Food Packaging division closed two thermoforming plants - in Visalia, Calif., and Sparks, Nev. - which eliminated 120 jobs.
The company also announced it would close its Mount Vernon, Ky., operation by midyear. Alcoa does thermoforming and injection molding at that plant with about 115 employees. Worldwide, the packaging and consumer businesses have roughly 10,000 employees in 22 countries, Alcoa said.
``Our packaging and consumer business is improving and strengthening,'' Alcoa Chairman and Chief Executive Officer Alain Belda said in an April 25 news release. ``In fact, first-quarter earnings more than doubled compared to the prior year, as the benefits of our restructuring program are hitting the bottom line.
``However, now is the right time for us to explore whether these businesses may provide more value on their own or as part of another company,'' he said.
Thermoforming equipment from the California and Nevada sites will be moved to other sites. In 2006, the company announced a thermoforming-related expansion at its plant in Grove City, Pa.