Analysts skeptical of Amcor's $8.4B deal to buy Berry Global

Some packaging industry analysts are skeptical that combining two of the world's largest plastics companies will generate any growth.

Amcor plc announced the proposed $8.43 billion purchase of Berry Global Group Inc. on Nov. 19.

The acquisition combines Amcor's global flexibles and regional containers businesses with Berry's regional flexibles and global containers and closures businesses.

Amcor CEO Peter Konieczny will lead the combined business, which will have annual sales of $24 billion and adjusted earnings before interest, depreciation, amortization and taxes of $4.3 billion.

Konieczny said the move will elevate the role of sustainability and orient Zurich-based Amcor's portfolio toward faster-growing, higher-margin categories.

"This is a highly complementary and financially compelling combination that will deliver significant and immediate value for our collective customers and shareholders," Konieczny said in a call with analysts.

But some packaging analysts and experts had doubts about promises of value for customers and shareholders.

"Like many packaging companies, Amcor and Berry are stuck in the mud with no growth to be found," said Timothy Burns of Cranial Capital Inc. in Solon, Ohio.

"There will be one-time synergy savings but no incremental growth," Burns said. "Will Amcor sell more flexibles because Berry is its appendage? Likewise, will Berry sell more rigid packaging because of Amcor Rigid Packaging? Probably not."

Peter Schmitt of Montesino in Wilmington, Del., agreed.

"The merger narrative emphasizes synergies and diversification: Berry introduces materials, products and processes that extend beyond Amcor's flexible and rigid packaging, as in markets beyond food and health care. However, the critical question remains — how will this merger impact customers and their markets?

"In today's landscape, the push to position plastic materials and packaging within a sustainable framework, coupled with the lingering effects of post-COVID stagnation, continues to challenge the packaging industry," Schmitt said.

Ghansham Panjabi of Baird said the companies' assumption that the combination will create incremental sales growth "will likely be viewed with skepticism."

The news continues what has been a year of big changes for Evansville, Ind.-based Berry Global.

In the third quarter of 2023, Berry closed 20 facilities as part of an effort to optimize its footprint. It followed that with more blockbuster news — the spinoff of the firm's Health, Hygiene and Specialties division and its films unit.

Those businesses, which Berry called HHNF, were combined with Glatfelter Corp. to create a new company called Magnera Corp. That deal closed on Nov. 4.

But even after spinning off the HHNF business, Berry is still one of the largest plastics processors in the world.

Berry is the largest injection molder in North America according to Plastics News' ranking with more than $2 billion in annual sales. It also comes in at No. 3 in thermoforming with $750 million in sales, No. 12 in blow molding with $529 million and No. 15 among North American toolmakers with $60 million in sales.

"Berry has undergone a significant transformation over the past year, completing the spin of our HHNF business, enhancing our product mix, optimizing our portfolio and reducing cyclicality," Berry CEO Kevin Kwilinski said in the earnings call.

"Berry's business has never been more complementary to Amcor, and this is the right time to combine these two companies to deliver more value to our customers and our shareholders."

In their announcement, the companies highlighted that merging the two companies will create a stronger business, strategically focused on high-growth, high-margin categories with greater capabilities and a more complete product offering for customers.

Amcor is the top company in Plastics News' ranking of North American blow molders, with relevant sales of $3.54 billion. Amcor Flexibles North America is No. 2 on PN's list of film & sheet manufacturers, with sales of $3.25 billion in the region.

The deal is subject to shareholder and regulatory approvals and is scheduled for the middle of 2025. The global headquarters will be in Zurich, but the company expects to maintain a significant presence in Evansville.

The deal generated a lot of buzz in the plastics industry, and one of the hottest questions was what the combination of the two companies would mean to the resin market.

Berry and Amcor are already huge resin buyers, with far more purchasing power than nearly all of their competitors.

Anthony Pettinari, a packaging analyst with Citi, asked the question directly in the earnings call.

"With the $325 million in procurement, I'm wondering if you could talk about the opportunity specifically in resin. I mean it seems like the combined company will be the largest global buyer of resin by far, if I'm thinking about that the right way. Just wondering if you could talk about [how] does this fundamentally transform how you buy resin?"

Amcor's Konieczny agreed.

"It just so happens that Berry is a big buyer in certain [resin] grades that Amcor is not such a big buyer of and vice versa. And that gives us the confidence that we can continue to leverage opportunity and value from procurement, which is, by the way, an incredibly important competence in the packaging industry, generally," he said.

"So if you don't procure well, you probably don't have a chance to be very successful. And this gives us just an opportunity to double down one more time in partnership with our suppliers. But obviously, we all have the need to drive cost out of the value chain. And this is just one step that we need to continue to focus on," Konieczny said.