Multi-Color Corp. is buying the labels business of Constantia Flexibles GmbH in a $1.3 billion cash-and-stock deal that intertwines the two companies.
Constantia Flexibles becomes Multi-Color's largest shareholder through the transaction and will have two people on Multi-Color's board.
Cincinnati-based Multi-Color calls itself one of the world's largest label companies with 45 manufacturing sites and 5,500 employees around the world. Sales were $923 million in its latest fiscal year. Constantia labels brings with it 23 plants in 14 countries with 2,800 employees. Sales of the combined operations are expected to be $1.6 billion annually.
"This is an exceptionally good deal for Multi-Color, both strategically and financially. Strategically because it gives us the best global food and beverage label platform in the largest label segment. It gives us much greater scale and reach in the group. It gives us much greater diversity both in markets and in terms of geography. And there are no customer concentration issues across the two business," said Nigel Vinecombe, executive chairman of Multi-Color, in a conference call.
Mike Henry, now executive vice president and leader of Constantia Labels, will become CEO of Multi-Color when the deal closes. Current CEO Vadis Rodato plans to retire early next year.
Constantia Flexibles, based in Vienna, will use proceeds from the sale to pay down debt and look for other acquisitions in the flexible packaging portion of its business.
"Following a detailed strategy review, we decided that our top-performing Labels division would be better suited with another partner, which will support its ongoing growth story," Constantia CEO Alexander Baumgartner said in a statement. "At the same time, Constantia Flexibles will participate in the future success story of Multi-Color through its shareholding."
Constantia Flexibles will receive 3.4 million shares of Multi-Color stock and will hold a 16.6-percent stake in the company.
Vinecombe said the acquisition pushes his company's debt load higher than normal, but Multi-Color will work to pay that down.
"In terms of leverage, this is an extraordinary transaction for us that many not come around again or at least for many years," Vinecombe said on the conference call.
The combined operations will be able to realize $15 million in cost savings by 2020 through a larger combined manufacturing base that will get the company closer to customers in certain instances, he said. And while two large label operations are coming together, Vinecombe said plant closures will not be a big part of the company's future. The future savings will come through procurement, manufacturing and selling, general and administrative expense savings.
Multi-Color, for example, will be able to use Constantia Labels' manufacturing capacity for pressure-sensitive label substrate in both the United States and Europe to cut costs.
Constantia Labels is the largest producer of beer labels, including film labels, in the world and has a strong position in in-mold labels.
Combining the label companies also will open up future potential acquisitions, Vinecombe said. "There are many acquisitions that make very good sense to add to this platform that would make less sense without it," he said.