Investment firm Canyon Capital Advisors is pressuring plastics packaging maker Berry Global Group Inc. to sell off businesses to boost its financial performance and more aggressively communicate about environmental issues and its packaging.
Los Angeles-based Canyon, which advises funds owning almost 7 percent of Berry shares, urged Berry President and CEO Tom Salmon in a Feb. 23 letter to hire an investment bank to improve the company's financial performance, lower debt and "get in front … of market misperceptions about sustainability" of plastic packaging.
Berry responded in a statement that it was focused on three strategic initiatives: generating profitable organic growth, integrating last year's purchase of RPC Group with an "intense" focus on cost savings and continuing to look for businesses to divest from. As well, the company defended its work and communications around plastics sustainability.
On the business side, Canyon said Berry's stock is "significantly undervalued" compared with peers in the packaging sector, with flat returns last year while its peer group stocks rose 34 percent and the S&P 500 rose 29 percent.
It said that trend has continued this year, with Berry's stock down 6.8 percent while its peers are basically flat at 0.6 percent and the S&P is up 3.3 percent.
"We think that accelerated deleveraging by making targeted divestitures of noncore assets is critical at this stage to improve [total shareholder return]," Canyon wrote. "Canyon believes the company should immediately retain an investment bank or other financial advisor to evaluate and provide guidance."
Canyon pointed to Berry's decision last year to sell its Seal for Life Industries LLC unit for $328 million to Arsenal Capital Partners. Seal for Life makes products for infrastructure maintenance, including plastic mesh to protect pipes from rocks during backfilling operations.
Canyon said it believes Berry stock trades at values lower than it should in part because of its debt levels.
It said it recognized steps management has taken in response to earlier correspondence, like a $500 million stock repurchase program in 2018 and the acquisition of RPC Group in 2019 for $4.4 billion.
"We believe Berry has acquired the global scale and innovation to lead the packaging industry into a sustainable future," Canyon said. "However, at this point more should be done to unlock value for shareholders."
Berry, however, defended its business strategies.
"Our board and our management team regularly review our operational portfolio and capital allocation to ensure that we are best positioned to drive shareholder value, including through divestitures, in order to maintain our strong balance sheet and proven track record of free cash flow growth," the company said.