Silgan's Graham Buy Threatened - Analyst Blog
14 Giugno 2011 - 1:54PM
Zacks
Silgan Holdings
Inc.’s (SLGN) acquisition of
Graham Packaging
Company Inc. (GRM), might be under threat and/or get more
expensive as the latter has received a higher offer of $25 per
share, or $1.6 billion, from New Zealand’s Rank Group.
Rank Group is owned by
Graeme Hart, a businessman based in New Zealand and reportedly the
richest Australasian, according to the 2009 Forbes list. Since his
2006 purchase of Carter Holt Harvey he has focused his acquisitions
on the paper packaging sector.
His largest
acquisition to date is Alcoa's Packaging & Consumer group for
$2.7 billion in 2008, later renamed Reynolds Packaging Group. Last
year the Rank Group acquired Pactiv Corp in a $4.4 billon deal.
Since then, the Rank Group has added Honeywell
International Inc.’s (HON) car-care products unit for $950 million
and UCI International Inc. from Carlyle Group for $375
million.
Graham Packaging’s board of
directors is currently contemplating the offer. In case
Graham Packaging's board considers Rank Group’s proposal superior
compared to Silgan’s, Graham Packaging is required to provide
Silgan with three business days' written notice and allow Silgan to
offer a matching bid.
If Graham
Packaging accepts such proposal from Rank Group, Graham Packaging
would be required to pay Silgan a termination fee of $39.5
million.
Earlier in April, Silgan
entered into an agreement to acquire Graham Packaging Company, for
approximately $1.3 billion in stock and cash. As per the offer,
Graham shareholders will receive 0.402 shares of Silgan and $4.75
in cash for each share of Graham.
Including net debt, the
deal ran to approximately $4.1 billion. On the basis of Silgan's
closing stock price on April 12, 2011, the transaction implies a
value of $19.56 per Graham share, representing a premium over the
closing price of Graham's stock on April 12, 2011 of approximately
17%.
Graham Packaging is a
leading global supplier of value-added rigid plastic containers for
the food, specialty beverage and consumer products markets. Silgan
expects the acquisition to be accretive to earnings and cash flow
per share in the first full year. The acquisition will fortify
Silgan as a premier food and specialty beverage packaging company
with annual sales of over $6.2 billion and 180 manufacturing
facilities across 19 countries.
Silgan expects to realize
operational cost synergies of $50 million by the third year
following the combination. These synergies will be achieved
primarily through reductions in administrative expenses,
procurement savings and a more efficient manufacturing cost
structure. Silgan had earlier outlined plans to raise debt to fund
the acquisition and meet transaction costs.
Silgan is currently the
largest manufacturer of metal food containers in North America,
hogging approximately half of the U.S. market in 2010. Silgan has
increased its sales and market share through acquisitions as well
as internal growth and, in the process, expanded and diversified
its customer base, geographic presence and product
lines.
The Graham packaging
acquisition will enhance Silgan’s ability to cater to the important
markets of food, specialty beverage and consumer products, which
are known for their stable demand with large, growing
multi-national customers with multiple rigid packaging
options.
Considering the synergies
from this combination, it remains to be seen whether Silgan ups its
offer and gets involved in a bidding war. We await more
developments on this event. We currently have a Zacks #2 Rank
(short-term Buy recommendation) on the stock.
Silgan is a leading
manufacturer of consumer goods packaging products operating 68
manufacturing facilities in North and South America, Europe and
Asia. In North America, Silgan is the largest supplier of metal
containers for food products and a leading supplier of plastic
containers for personal care products.
In addition, Silgan is a
leading worldwide supplier of metal, composite and plastic vacuum
closures for food and beverage products. It operates through three
segments, namely Metal Food Containers, Closures and Plastic
Containers. Silgan competes with the likes of
Ball
Corporation (BLL), Crown Holdings Inc.
(CCK) and privately held Berry Plastics
Corporation.
BALL CORP (BLL): Free Stock Analysis Report
CROWN HLDGS INC (CCK): Free Stock Analysis Report
GRAHAM PACKAGNG (GRM): Free Stock Analysis Report
HONEYWELL INTL (HON): Free Stock Analysis Report
SILGAN HOLDINGS (SLGN): Free Stock Analysis Report
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