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January 23, 2017 01:00 AM

Silgan buys WestRock's closures business in $1 billion deal

Jim Johnson
Staff Writer
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    WestRock Co.
    Silgan Holdings Inc. says its purchase of WestRock Co.'s specialty closures and dispensing business includes 13 plants.

    Updated: Silgan Holdings Inc. is making a billion-dollar deal for WestRock Co.'s specialty closures and dispensing business, formerly known as Calmar Inc.

    The acquisition includes 13 plants in North America, Europe, South America and Asia making triggers, pumps, sprayers and dispensing closures for home, health and beauty products companies, Silgan said.

    “We're particularly pleased with this acquisition as it's a business we've literally had our eye on for over a decade,” CEO Tony Allott said on a conference call to discuss the deal Jan. 23.

    Stamford, Conn.-based Silgan was the winner in an auction for the business, which had sales of $566 million for the fiscal year ended Sept. 30.

    A predecessor to WestRock, MeadWestvaco, purchased Calmar in 2006 from Cie. De Saint-Gobain SA. MeadWestvaco and RockTenn merged in 2015 to form WestRock and ultimately decided to divest the business.

    “We have a constant strategic focus at WestRock on aligning our portfolio and resources around our core paper and packaging solutions business, and the sale of our Home, Health and Beauty business is the next step in this process,” WestRock CEO Steve Voorhees said in a statement.

    For Silgan, however, the acquired operations represent an opportunity to delve deeper into a portion of the company's business that provides strong returns, Allott said.

    Most of Silgan's current annual revenue, 63 percent or almost $2.3 billion, comes from its metal containers business. But its closures business checks in at 22 percent of sales, with $799 million in annual revenue. That includes both plastic and metal closures. The company also has a plastics container unit, which accounts for 15 percent of sales, or $551 million annually.

    Silgan has grown the closures business over time through acquisitions, including Portolo Packaging Inc. in 2013.

    While WestRock called the operations being sold the Home, Health and Beauty business, Silgan is referring to the assets as the dispensing systems business. WestRock listed $280 million in injection molding sales in North America for 2015 in Plastics News' annual ranking, placing it at No. 26 among the region's largest injection molders. However, it was not immediately clear how much of that production goes with Silgan in the acquisition and how much remains within WestRock.

    Sales are divided into seven different categories, led by triggers at $168 million, or 30 percent of the total sales last fiscal year. Dispensing pumps and spray pumps each add about $120 million and 21 percent to the total. And large sprayers used in lawn and garden and surface care applications check in at $50 million, or 9 percent of sales.

    Dispensing closures are at $37 million and 7 percent, healthcare dispensers are at $36 million and 6 percent, and aerosol sprays are at $33 million and 6 percent, Silgan reported.

    “We think it's pretty compelling in terms of broadening the closure franchise,” Allott said. “We really believe there is a great fit between our closures business and this closures business, and that really we'll be second to none in the market once combined.”

    Silgan expects to cut costs by $15 million within two years of making the purchase through manufacturing efficiencies, procurement savings and reductions in general and administrative expenses, the company said.

    The $1.025 billion purchase is expected to close during the first quarter of this year, Silgan said.

    The acquisition will boost the closures portion of Silgan's business to 33 percent, with metal containers accounting for 54 percent and plastic containers at 13 percent, the company said. “So really becoming a substantial part of the total Silgan family,” Allott said about closures.

    The CEO also was asked on the conference call whether this acquisition changes the company's view on its plastic container business, which is undergoing a reorganization in an effort to boost performance.

    “We're in the exact same spot. We're in the midst of an effort to improve and finish the footprint rationalization we're doing there. Allow the business to go through that process. And, as we've said, as we merge out of that we'll take a good, hard look at whether we believe we have a competitive advantage in that space,” Allott said.

    “And if we do, we'll push forward. And if don't, then we'll look for other opportunities, which by the way, is what we say about all of our businesses,” he said.

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