GRM Graham Packaging CO Inc. Common Stock

Silgan Holdings Inc.’s (SLGN) acquisition agreement with Graham Packaging Company Inc. (GRM) has been terminated with Silgan not upping its prior offer within the three days' grace period leading to Graham accepting Rank Group’s much superior offer.

Last week, Graham Packaging had informed Silgan that it is planning to accept a higher offer of $25 per share, or $1.64 billion, from New Zealand’s Rank Group and Silgan had three days to come up with a better offer. Graham will now receive a higher sum of $25.50 per share from Rank Group of $1.68 billion.

As the Silgan-Graham deal will not materialize, Graham Packaging will have to pay Silgan a termination fee of $39.5 million as per their original agreement.

Graham Packaging is a leading global supplier of value-added rigid plastic containers for the food, specialty beverage and consumer products markets. Earlier in April, Silgan entered into an agreement to acquire Graham Packaging Company, for approximately $1.3 billion in stock and cash. Including net debt, the deal ran to approximately $4.1 billion. As per the offer, Graham shareholders would have received 0.402 shares of Silgan and $4.75 in cash for each Graham share.

On the basis of Silgan's closing stock price on April 12, 2011, the transaction then implied 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%. However, this was no match for Rank’s much superior bid.

The Silgan-Graham combination came into jeopardy as Graham Group was approached by Rank Group last Monday with a superior offer of $25 per share. 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, the entrepreneur has focused his acquisitions on the paper packaging sector.

Silgan had expected the deal to be accretive to earnings and cash flow per share in the first full year of operation. The acquisition would have fortified 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.

The acquisition was expected to result in operational cost synergies of $50 million by the third year following the combination, if successful. Silgan had earlier outlined plans to raise debt to fund the acquisition and meet transaction costs.

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. Silgan is currently the largest manufacturer of metal food containers in North America, hogging approximately half of the U.S. market in 2010.

If Silgan had remained in the Graham race, it would have ended up paying more than it had intended. Silgan will overcome this setback and identify other acquisition opportunities to further strengthen its position. 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.

 
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