Tredegar Corp. is expanding its films reach in Latin America, buying Terphane Holdings LLC, a manufacturer of specialty polyester films headquartered in São Paulo.
Richmond, Va.-based Tredegar, a maker of polyethylene and polypropylene films and aluminum extrusions, will pay London-based Vision Capital Partners LLP $188 million for Terphane, using available cash on hand and financing from Tredegar's existing $300 million credit facility.
The deal is scheduled to close later in October. Officials from Terphane referred a request for comment to Tredegar. Officials in Richmond will comment on the deal after it has closed, a spokesman said Oct. 17.
In the past 12 months, plastic film accounted for 70 percent of Tredegar sales and a slightly higher percentage of earnings, said Timothy Hayes, a research analyst at Davenport & Co. LLC in Richmond.
The Terphane acquisition diversifies Tredegar's film offerings into more areas of food packaging in addition to the company's presence in diapers and other personal-care products, as well as films for flat screens (from its Bright View Technologies Corp. subsidiary in Morrisville, N.C.), Hayes said in an Oct. 19 telephone interview.
“This is a sizable acquisition for Tredegar,” Hayes said. “Strategically, this [deal] puts them into films that are in a non-cyclical market. It makes sense.”
John Hart, plastics and packaging group director at P&M Corporate Finance LLC in Southfield, Mich., said Tredegar is an example of a company that has kept its balance sheet strong and avoided incurring unnecessary debt, waiting out the recent economic downturn to make its first acquisition in several years.
“This is an example of a strategic buyer deploying capital in a focused way,” he said. “[Tredegar] did not have much presence in food packaging, and this [acquisition] moves them into that space.
“This also gives Tredegar more presence in South America, which is a tremendous growth market,” he said.
Nancy Taylor, Tredegar's president and CEO, said her company sought an acquisition that met Tredegar's goals for market expansion and customer and product diversification.
“Terphane's high-value, differentiated products will extend our product offerings into adjacent specialty films markets and allow us to expand in Latin America, which is one of the fastest-growing and dynamic geographic markets in the world,” she said in a news release.
In a note to investors, Davenport & Co. gave Tredegar a continued neutral rating, based in part on Tredegar management's prediction that low consumer confidence, high resin prices and competition in value-added products markets will continue to exert pressure on its personal-care and surface-protection businesses into early 2012.
For the second quarter of 2011, Tredegar reported profit of $5.7 million on sales of $201 million, compared with profit of $4.9 million on sales of $185 million for the year-ago period.
Terphane operates manufacturing facilities in Cabo de Santo Agostinho, Brazil, and Bloomfield, N.Y.
Formed as Rh"ne-Poulenc Films in 1976 to import polyester films from France to Brazil, Terphane changed to its present name in 1998, according to the company website.
The firm's first film line in Brazil started up in 1979 and the company acquired the Bloomfield plant in 1988 from Eastman Kodak Co.
Between 1998 and 2001, Terphane invested about $9.5 million in its business, with close to $7.1 million going toward new equipment, including polymerization coating, metalizing and slitting. Terphane claims overall production capacity of 44,000 tons annually.
“Terphane is an example of a Brazilian company that has grown its business and established a footprint in North America,” P&M's Hart said. “Now that they've been acquired, this is an opportunity for continued growth.”
Tredegar had sales of $740 million in 2010.
With roughly 2,000 employees, the company operates 11 plastic film plants in the Americas, Europe, and Asia.
Tredegar Film Products Corp., the films unit of Tredegar, ranked No. 13 in Plastics News' most recent survey of North American film and sheet manufacturers, with related 2010 sales of about $520 million.
According to Securities and Exchange Commission filings, Tredegar's largest film customer is Procter & Gamble Co. Sales to P&G totaled $253 million in 2009, $283 million in 2008 and $259 million in 2007.
Terphane Inc., the U.S. unit of Terphane, ranked No. 87 in the survey, with related sales of $53 million out of a corporate total of $160 million for 2010, according to Plastics News' and industry estimates. Terphane Inc. employs about 50.
Tredegar was advised on the acquisition by Deloitte Corporate Finance LLC.