Novolex buying Pactiv Evergreen in $6.7B deal

Novolex Holdings is taking over fellow plastic packaging maker Pactiv Evergreen Inc. in a $6.7 billion blockbuster deal.

The move combines two companies with deep plastics portfolios, including bags, film, thermoforms, plastic containers, cutlery, dinnerware and drinkware.

But both firms also have extensive operations making paper-based products, and Pactiv Evergreen brings an added specialty in the aluminum foil and container line of products, including the well-known Reynolds brand name, to the deal.

The combined company will have more than 250 brands and more than 39,000 individual products, the companies said in announcing the deal Dec. 9. The combined operation will have "one of the most diverse substrate sets in the packaging industry, including multiple types of fiber, resin and post-consumer recycled content."

Charlotte, N.C.-based Novolex is owned by private equity firms Apollo Global Management and Carlyle Group, while Pactiv Evergreen is publicly traded with majority control owned by New Zealand billionaire Graeme Hart. Novolex is paying $18 per share for Pactiv Evergreen, a 49 percent premium.

As part of the purchase agreement, both sides have agreed to pay a termination fee if they scuttle the deal. Pactiv will pay a $67 million termination fee if that company backs away, and Novolex is on the hook for $236 million if it decides to abandon the acquisition.

Pactiv Evergreen's stock price rose from $14.66 per share prior to the announced acquisition to settle just below $18.

Baird analyst Ghansham Panjabi raised the company's price target to the $18 value offered by Novolex, up from $12, and said the sale represents part of "the initial stages of a long-tailed consolidation cycle" for the packaging industry.

While the focus of that trend has been on plastics packaging, he added he expects other substrates to be part of that consolidation process.

Novolex is the larger player in film, ranked at No. 6 in North America, according to Plastics News data, with $1.43 billion in sales for the region. Pactiv Evergreen comes in at No. 44 among film makers, with $207 million in sales.

But Pactiv is far bigger when it comes to thermoforming, where it comes in at the top spot in PN rankings with $3.6 billion in sales. Novolex is No. 10 among thermoformers with $685 million in sales.

"Pactiv Evergreen's strong product portfolio, along with their talented team, will complement and add significant depth to Novolex's diverse packaging solutions. Our companies share a dedication to customer success, a steadfast entrepreneurial spirit, and have aligned values of integrity, collaboration and excellence," said Novolex CEO Stan Bikulege, who will remain leader of the combined company, in a statement.

"This transaction reflects the continuation of our long-term growth strategy to create the industry's most innovative, sustainable and customer-focused company," he said.

Michael King is the CEO of Chicago-based Pactiv Evergreen and indicated the company was looking for a change.

"The board and leadership team evaluated a range of opportunities and are confident this transaction maximizes shareholder value and is the best path forward for all stakeholders," he said in a statement, calling the deal a "milestone."

Pactiv Evergreen, King said, had been working for the past three years on a transformation plan that focused on company strengths, operations and profitability.

"As the packaging industry continues to evolve, bringing together these two talented teams will better position the combined company with enhanced and complementary capabilities to meet shifting consumer demands and provide the highest-quality products and services to customers," officials with Novolex majority owner Apollo said.

Packaging, on both the plastics and paper sides, has gone through waves of consolidation in recent decades. The scale and scope of both companies' portfolios are a product of deals as both firms grew over the years. Novolex was once known as Hilex Poly before changing the company's name a decade ago.

Novolex is paying all cash for Pactiv Evergreen in the deal valued at $6.7 billion, including debt. Cash for the deal comes from both Apollo and the Canada Pension Plan Investment Board, which is chipping in about US$1 billion to become what is being described as "a significant minority shareholder in the post-merger company."

The transaction is expected to close in the middle of 2025 and is subject to regulatory approvals. Although Pactiv Evergreen is a publicly traded company, the deal already has been approved by majority stock owner Hart. That means there is no need for a shareholder vote. And because the buyers are paying cash, the transaction does not require financing.

"Novolex and Pactiv Evergreen serve attractive end markets, and both companies have made tremendous progress in recent years to enhance their operations and strengthen their focus on product innovation and sustainability leadership." Apollo said.