Pact Group takeover bid rejected as ‘neither fair nor reasonable'

An independent expert has said a A$234 million (US$147 million) takeover bid for one of Australia's largest plastic packaging companies by its current chair is "opportunistic."

Publicly listed, Melbourne-based Pact Group Ltd. chair Raphael Geminder's family-owned company Kin Group Pty. Ltd. lodged the bid in the name of its wholly owned subsidiary Bennamon Industries Pty. Ltd. Geminder, whose private family companies already own 50 percent of Pact, has recused himself from the board during the offer period, which ends on Nov. 8.

The bidder's statement said Kin Group will delist Pact as soon as it can, if the bid is successful.

A Pact statement filed with the Australian Stock Exchange (ASX) said an independent expert report completed by Sydney-based financial adviser Kroll Australia Pty. Ltd. found the offer was "neither fair nor reasonable."

The board, apart from Geminder, has consequently recommended shareholders reject the offer for their Pact shares, saying it undervalues the company.

Kroll's report said the estimated value of a Pact share was between A$1.06 to A$1.51 (US$0.66 to US$0.95), whereas Kin Group's offer was only A$0.68 (US$0.42) per share. Kroll's estimate values the company at between A$366 million (US$231 million) and A$520 million (US$328 million).

The board, apart from Geminder, said Kin Group is trying to increase its control over Pact without paying "a customary premium" and its offer does not reflect the potential benefits of its "transformation strategy."

The strategy includes a A$20 million (US$12 million) cost-reduction initiative and the sale of 50 percent of its reusable plastic crate pooling business for A$160 million (US$101 million) to global infrastructure investment manager Morrison & Co. Ltd.

The cost reduction initiative was reducing the company's head count by 175 employees.

The board said Pact also planned to sell its contract manufacturing arm and another arm, called Viscount Rotational Moldings, which was "no longer core," given the sale of half the crate pooling business.

Pact's statement urging shareholders to reject the bid argues that supply chain disruptions have moderated, resin prices are stable and input costs, while elevated, are stabilizing.

In Pact's just-released annual report for the 2023 fiscal year, which ended June 30, Geminder acknowledged his private company's takeover bid, saying he still has confidence in Pact's long-term future.

"However, with the current challenging economic and operating environment, high leverage and substantially reduced institutional investor support, I believe the future success of Pact is best achieved under private ownership," Geminder said.

Pact Managing Director and CEO Sanjay Dayal said in the FY23 annual report that the company delivered solid sales growth totaling A$1.949 billion (US$1.231 billion), up 6 percent from the previous year.

In Pact's just-released fiscal year 2023 sustainability report, the company said it processed more than 54,000 tons of recycled plastic over the 12 months — equivalent to the total weight of steel in the landmark Sydney Harbour Bridge.

That was a 42 percent increase vs. 2022, with the waste coming from household curbside collections, container deposit schemes, and pre-consumer and post-industrial scrap.

The plastic was recycled at seven facilities across Australian and New Zealand operated by Pact and its joint-venture partners, where it was converted into food-grade or industrial-grade recycled resin and flake. It was then used by Pact to make new packaging or sold to other manufacturers.

Dayal said two new recycling facilities operated by Pact and its partners in Melbourne will be operational before year end, increasing Pact's annual plastic recycling capacity by another 40,000 tons.

The new plants are Circular Plastics Australia (PET), a joint venture between Pact, Cleanaway Waste Management Ltd., Asahi Beverages, a unit of Japan's Asahi Group Holdings, and Coca-Cola Europacific Partners plc., and a separate Pact-Cleanaway facility that will recycle high density polyethylene milk bottles and dairy product containers.

The sustainability report said the PET plant will recycle the equivalent of about 1 billion PET bottles annually.

The report said Pact circulated more than 82 million reusable plastic crates, eliminating 40,500 tons of single-use cardboard from the fresh produce supply chain.

It also redistributed 842 million plastic clothes hangers and 175 million security tags for reuse in the retail clothing industry.

The company decreased use of "problematic resins" with polystyrene packaging production down 11 percent and PVC packaging production down 42 percent.

Dayal said Pact has "completely ceased our consumption of expanded polystyrene ahead of government mandates."

The average recycled content across Pact's packaging portfolio was 12 percent and the company aims to reach 30 percent by 2025.

Pact was launched in 2002 after Geminder bought the industrial packaging operations of Visy Industries Pty. Ltd., a company owned by his father-in-law, the late Richard Pratt. Pact was listed on the ASX in December 2013, with Geminder retaining a significant interest. The company grew significantly from 2015 until 2018, through organic diversification and acquisitions.

Pact entered contract manufacturing through buying Jalco Group, which supplies outsourced manufacturing and filling in the non-food fast moving consumer goods sector, in September 2015 for A$80.1 million (US$50.6 million); Australian Pharmaceutical Manufactures, which manufactures and packages nutraceuticals, in September 2016 for A$88.6 million (US$56 million); and Pascoe's Group, which manufactures aerosol and liquid-based household consumer products and industrial chemicals, in February 2017 for $51.8 million (US$32.7 million).

It also expanded internationally, buying two Asian-based plastic packaging businesses in February 2018 for A$149.3 million (US$94.3 million).

Pact entered crate pooling in FY16 and invested significant capital expenditure to establishing the business in Australia. It expanded its pooling operations with the 2018 purchase of TIC Retail Accessories, a closed-loop plastic garment hanger and accessories re-use business for A$130.8 million (US$82.6 million).