Although newspaper reports say Sealed Air Corp. of Elmwood Park, N.J., is near a deal to buy the packaging business of Alcan Inc., mergers and acquisitions experts in the plastics industry say a deal between the two is not imminent.
Some sources said a deal between the two probably will not even happen.
Several sources have acknowledged that a deal has been in negotiations for months between Sealed Air and Alcan, but other potential acquirers have surfaced, including Bemis Co. Inc. of Neenah, Wis., and Amcor Ltd. of Melbourne, Australia.
``I don't think the [Sealed Air] deal's going to get done,'' said one industry source. That source, speaking on the condition of anonymity, said some problems may have come up during due diligence.
Sealed Air spokesman Ken Aurichio, in an Aug. 22 telephone interview, said he could not comment on rumors or speculation.
In July, mining major Rio Tinto plc of London agreed to buy Montreal-based Alcan for US$101 per share, which put the company's value at US$38 billion. Under the terms of that proposed all-cash buyout, Rio Tinto stipulated Alcan divest its packaging business, which includes plastics packaging for food and beverage, medical and pharmaceutical, cosmetics and tobacco.
Another source speculated either Sealed Air or Bemis could end up acquiring the business.
Sealed Air, for its part, has been willing to take significant financial risks to increase market share. Bemis, although much more conservative and focused on bargain hunting, immediately would benefit from increased market share in Europe in flexible packaging.
In its 2006 annual report, Bemis officials said the firm has a growing presence in Europe in flexible packaging. Its end markets include processed and fresh meats, confections, medical and pharmaceutical, and cheese.
Those markets are very similar to Alcan's.
Alcan also has a significant presence in the confectionary market and tobacco packaging. With confection, the deal might make sense for Sealed Air's Cryovac division.
``Alcan is a huge supplier into the confection market and Cryovac has no presence there,'' the source said. ``From a market position standpoint, it really sort of dovetails.''
Alcan's cosmetics business also might be attractive to a company like Sealed Air, whose officials have been very outspoken about the company's need to build its presence globally. Cosmetics is growing especially in countries in Asia, where consumers are gaining spending power.
Analyst Ghansham Panjabi of Wachovia Capital Markets LLC in New York said purchase price is key. If Sealed Air buys Alcan, it will be a game-changer for Sealed Air, giving it the opportunity to kick-start a much-needed consolidation in the European flexible packaging industry.
But execution risk is significant, Panjabi wrote in an Aug. 20 research report. Sealed Air has a mixed track record for executing large deals. Panjabi was not available for further comment before deadline.
``It would definitely move Sealed Air up,'' one source said. ``If they did it, they would become the No. 1 flexible packaging company.'' The source noted, however, that such a deal might not make economic sense.
``Just to be No. 1 ... that doesn't really buy you very much. It's just bragging rights.''
In that source's view, a deal with Amcor makes more sense. The Australian company is a major European player, but it does not have a lot of flexible packaging operations in North America.
``This would be a substantial way to make a move,'' the source said. ``They certainly know that business from an operational standpoint.''
Even with all the interest from publicly held strategic players, sources would not rule out potential interest from private equity players.
Apollo Management LP, for example, already owns Berry Plastics Group Inc. of Evansville, Ind., which now includes the Covalence flexible packaging business.
``They [Apollo] have a business to put [Alcan] with and they're very, very savvy bidders,'' the source said.