The sale of Rexam plc's beverage and specialty closures business to Berry Plastics Corp. for $360 million frees Rexam to concentrate on reducing debt and improving results in its plastic and metal packaging divisions.
“Our priority is to reduce net debt to the low end of the target range of 2-2.5 times net debt to [earnings before interest, taxes, debt and amortization],” said Greg Brooke, Rexam's vice president of U.S. corporate affairs, in a June 20 email. Proceeds from the sale of the business will be used to achieve that end, he said.
The deal, announced June 20, is scheduled to close in the third quarter.
Robert Weilminster, Berry's executive president of corporate development, said the Evansville, Ind.-based firm does not plan any layoffs as a result of the acquisition, the Evansville Courier Press newspaper reported June 20. Weilminster was unavailable when Plastics News sought additional comment.
As of Dec. 31, London-based Rexam SBC had gross assets of £280 million ($453 million) and liabilities of £50 million ($81 million).
The sale — Rexam's planned reorganization of its plastic packaging operation — will produce an exceptional charge of around £25 million ($40 million), of which £15 million will be cash costs.
Rexam SBC does injection and compression molding of specialty and beverage closures, jars, and other plastic packaging for food, beverage, industrial and household chemical, automotive and beauty end markets.
The closures business had 2010 sales of about $500 million. It employs 1,500 and has eight manufacturing plants — seven in the U.S. and one in Brazil. It also operates joint ventures in Malaysia and Mexico, and a technical center in Perrysburg, Ohio.
Rexam bought the business from Owens-Illinois Inc. in 2007.
In a June 20 note to investors, analyst Ghansham Panjabi of Milwaukee-based private equity firm Robert W. Baird & Co. Inc. said that shedding the underperforming closures unit was a “modest positive” move for London-based Rexam.
“They had ambitions to become a dual-substrate [metal and plastics] company back in the 2005-07 time period … and to roll up the plastics packaging business, which, at the time, had not seen a dramatic amount of consolidation beyond that which occurred in the 1990s,” Panjabi said in a June 20 telephone interview.
“Since then, things have obviously changed, over the last three years in particular, and [Rexam] ended up with a little bit more than they could handle, and so they decided to prune the portfolio,” he said.
In the note and interview, Panjabi said Rexam's remaining plastics businesses, operating in highly profitable health and cosmetics markets, will allow the firm to play an active role in consolidating those fragmented markets.
Baird is keeping a neutral rating on Rexam for the near future.
The Berry-Rexam deal had been rumored in mid-June and London business newspaper City A.M. reported June 17 that Rexam was in exclusive negotiations with Berry, which is majority-owned by private equity firm Apollo Management LP of New York.
In December, Rexam officials had confirmed that they were in talks to sell the SBC unit. At its May annual meeting, Rexam announced that for accounting purposes, it was reclassifying the largely North American closures unit as “discontinued operations.”
Rexam's remaining plastics businesses, focused on health-care and personal-care products, are working with customers to find and deliver growth and value opportunities, Brooke said. Rexam will discuss volume trends and outlook in its half-year results in early August, he added.
Curt Begle, president of Berry's Rigid Closed Top Division, said in a June 20 news release that the Rexam business will complement Berry's operations and establish it in markets where it doesn't have a significant presence.
Berry said June 22 that it will add 120 jobs in customer service, finance and general administration over the three years at its Evansville headquarters. The openings are due to continuing growth, as well as the consolidation of offices in Rolling Meadows, Ill., and Minneapolis, officials said in a news release.
Berry recently completed a facility expansion to house production and administration. The new positions will add wages and benefits of $6.25 million annually. Jobs are expected to be staffed mainly with new hires.