With Bemis Co. Inc., Amcor Ltd. sees a way to significantly expand its flexible packaging business in the Americas.
In Amcor, Bemis sees an opportunity to hitch itself to the stability of a larger company after spending recent years trying to turn business around.
So Melbourne, Australia-based Amcor is acquiring Neenah, Wis.-based Bemis in a massive $6.8 billion, all-stock deal that's expected to close early next year.
Both companies say the transaction is transformational, giving Amcor a global flexible packaging presence when combined with its existing operations.
Bemis has been blunt about its need to reorganize and do better during the past couple of years, and said its been making progress at doing just that.
“By combining with Bemis, Amcor takes a big step toward being the global leading consumer packaging company at a moment in time when the opportunities for a leading packaging company have never been greater,” Amcor CEO Ron Delia said on a conference call to discuss the deal.
Combined sales for the company will be $13 billion, including $4 billion coming from Bemis. Bemis shareholders will receive 5.1 shares of Amcor stock — valued at a total of $57.75 — for every share that they own.
That translates to a 25 percent premium to a closing price of $46.31 for Bemis shares as of the share price Aug. 2.
Bemis shareholders will ultimately own 29 percent of the larger company, with Amcor shareholders holding the remaining 71 percent.
“For both sets of shareholders, this transaction delivers a unique opportunity to benefit from significant value creation and value which would have not been achievable in the same time frame by either company independently,” Delia said.
Combining with Bemis, which lists shares on the New York Stock Exchange, will allow Amcor access to that trading platform. The larger company also will continue to be traded on the Australian Securities Exchange.
And while the combined company will be listed in both the United States and Australia, Amcor will move its official headquarters to Jersey, a British island located near Normandy, France. This new domicile will result in more favorable tax treatment.
Amcor expects to save about $180 million per year through the acquisition after three years, including $65 million from actions taken the first year after the deal closes. That number jumps to an estimated $130 million by the end of year two.
Some 40 percent of the savings will come from lower procurement costs, and Amcor will look at operations to capture 20 percent of the total. Another 40 percent will come from so-called general and administrative costs, or money used to run the business outside of production.
Companies often talk about SG&A costs, with selling also involved in the category. But Amcor said it has no intention of cutting its sales staff to achieve savings through this deal.
That means the company will look at how the combined operations fit together as well as other non-manufacturing costs to achieve the $180 million in annual savings.
Paying for those changes will cost an estimated $150 million to implement. Those costs will take place during the first two years, with funding coming from capital expenditure and working capital savings, the companies said.
Bemis brings 56 manufacturing locations to Amcor, which already has 195 plants of its own.
“We are two very complementary organizations, and we believe this transaction will drive significant value for our customers, employees, partners and shareholders,” Bemis CEO William Austen said. “Together, we will create a global leader in consumer packaging with a footprint, scale, talent and capabilities to serve customers around the world.”
Amcor has been building its flexible packaging operations in North America into a $500 million business during the past few years through a series of acquisitions. Amcor already has an extensive rigid plastic container business in North America.
Adding Bemis' sales of about $2.8 billion in that region creates a $3.4 billion flexibles operation in North America. Amcor also does about $400 million in Latin America, compared to about $500 million for Bemis.
Amcor has much stronger sales of flexibles in Europe at $2.9 billion, compared with $300 million for Bemis. The same is true for Australia, where Amcor's homefield advantage brings in $1.2 billion while Bemis sells $200 million annually.
“Bemis and Amcor are a great fit, not just geographically, but culturally,” Austen said.
Bemis was No. 3 in the most recent Plastics News ranking of North American film and sheet processors.
A small part of Bemis' business is in rigid packaging, which is a major component of Amcor's overall operations, including North America.
Amcor Rigid Plastics, based in Ann Arbor, Mich., was No. 1 in Plastics News' latest ranking of North American blow molders, with estimated sales of $2.26 billion.
“The reality is we already have a global footprint and we were a little big short on presence and participation in the Americas [in flexible packaging]. This deal helps us fill in, or let's say bolster, that part of the portfolio,” Delia said.