Dallas-based Hicks Acquisition Co. Inc. said it will buy Graham Packaging Holdings Co. in a deal worth $3.2 billion, and will take the York, Pa.-based plastic bottle maker public.
One analyst said the Graham sale is a vote of confidence by investors in the plastics industry.
``What they're saying is a thumbs-up for the markets Graham serves,'' said Bill Ridenour, president of Polymer Transaction Advisors Inc. of Newbury, Ohio, in a telephone interview.
According to a June 30 news release, HAC, a special-purpose acquisition company founded by Texas Rangers owner Thomas Hicks, will own 66 percent of Graham shares. The current owners, buyout firm Blackstone Group of New York and Graham Group, will hold the remaining 34 percent. The companies and analysts said they believe the deal is the largest transaction ever between an industrial company and a special-purpose acquisition firm.
Following completion of the transaction, the company will be renamed Graham Packaging Co. and will apply for a listing on the New York Stock Exchange. Blackstone will hold the largest bloc of shares for at least two years after the deal closes, to continue to guide the company.
Launched in October, HAC had an initial public offering of $552 million in gross proceeds. Graham will be its first operating business.
``Hicks is taking advantage of an opportunity with Graham to buy in,'' Ridenour said. ``With all the money Hicks had and with the length of time it had been sitting there doing nothing, they had to do something.''
Howard Snyder, vice president of the plastics and packaging group at Curtis Financial Group LLC in Philadelphia, said the deal is not a major liquidity play, and does not significantly affect day-to-day operations. ``You're getting another partner coming in, but there's not going to be a significant infusion of cash into the company.''
Founded in 1972, Graham is a leader in blow molded bottles for the food and beverage, household, personal-care and automotive lubricant industries. Blackstone in 1998 took control of Graham through a leveraged recapitalization and then doubled the size of the company by acquiring the plastics unit of Owens-Illinois in 2004.
Graham reported net losses of $206 million on net sales of $2.49 billion in 2007. Profit fell 71 percent from 2006, when the company reported a net loss of $120.4 million on sales of $2.52 billion.
Under the agreement, the Hicks fund will pay $700 million and assume about $2.29 billion of Graham's debt, as well as paying fees of about $55 million and paying down debt of $156 million. Graham shareholders will receive $350 million of cash held in trust, 35 million common shares and 2.8 million warrants.
The purchase consideration includes a transfer of value to current Graham equity holders of 2.8 million founder's shares and warrants. In exchange, the Hicks-led sponsor will retain earn-out units, the shares of which have a trigger price of $13.75 and the warrants of which will become exercisable at a strike price of $10 and a trigger price of $15.
``After considering more than a hundred possible transactions, we're tremendously pleased to have identified Graham Packaging as the right transaction for Hicks Acquisition and to be partnering with Blackstone, whose senior partners I have had close business relationships with for many years, and the other current Graham equity holders,'' Hicks said in the release.
Graham operates 87 plants in 16 countries and employs 8,700. Graham closed a PET bottle and polypropylene closures factory in Edison, N.J., in June.
According to Securities and Exchange Commission filings, the price tag for Graham is 7.7 times earnings before interest, taxes, depreciation and amortization. HAC said a nearly 300 basis-point improvement in Graham's EBITDA margins from 2006 to 2008 with adjusted margins of 15.8 percent in 2006, 17.3 percent in 2007 and an estimated 18.7 percent in 2008 was a prime factor in the decision to buy Graham.
The transaction values Graham Packaging's equity at about $1.2 billion, with the balance of the value coming from assumed debt.
Completion of the deal will require a shareholder vote. Graham officials said they expect to close by the end of third quarter 2008.