Rexam plc will close two plants in the second half of next year, the London-based consumer packaging giant announced Dec. 5.
The closures are part of Rexam's integration of the plastics assets of Owens-Illinois Inc., which Rexam bought last summer for $1.8 billion.
Rexam will shutter a former O-I plant in Rossville, Ga., that employs 85 and blow molds packaging for diagnostic health-care products. It will close in the fourth quarter.
Also slated for closure is Rexam's plant in West Lafayette, Ind., which employs about 60 and injection molds packaging for medical diagnostic products. Shutdown is scheduled for the third quarter. That plant, which opened in 1978, formerly was part of Precise Technology Inc., a company Rexam bought in 2005.
Production in West Lafayette will be absorbed by other Rexam plants in the United States, said Greg Brooke, Rexam's vice president of communication, in a telephone interview.
Rexam took some criticism from the investment community after the O-I deal, with several analysts saying Rexam overpaid.
At face value, the price tag of $1.8 billion represented 11.3 times the O-I plastics business' 2006 earnings before interest, taxes, depreciation and amortization. Analyst Tim Burns, principal of Solon, Ohio-based Cranial Capital Inc., said that, historically, the ability to create value is diminished when companies pay more than nine times EBITDA.
Six months later, Burns said, the jury's still out on whether the deal proves fruitful for Rexam.
``The plant closures were obviously going to happen,'' Burns said. ``It's part of the whole cost and synergy story. It gets Rexam to a positive return on investment. But they still have their work cut out for them.''
Burns still believes the company paid ``an extraordinary price'' for O-I's plastics business, but said only time will tell whether it was a wise investment.
``Rexam has taken on big, gutsy acquisitions in the past,'' he said. ``I wouldn't put it past them to pull this out.
``The final score isn't going to be for another year to 18 months. There's going to be three years of just digging at this and blending it with existing assets.''
Rexam announced recently that it will close its injection molding plant in Streetsboro, Ohio, beginning Dec. 21. That plant employs 46. That closure is unrelated to the O-I acquisition. The Streetsboro plant's only customer, Westport, Conn.-based Playtex Products Inc., decided to shift production of Diaper Genie refills to its plant in Sidney, Ohio.