Share price woe prompts RPC strategic review

In a statement today (6 June), the group, headed by chief executive Ron Marsh, said it would consider “all options to maximise shareholder value”.

Tim Rothwell, a packaging specialist at Lansdowne Resources, said the announcement was “a very nice, roundabout way of saying the business is up for sale”.

“People who have been shareholders since RPC was floated have seen a very disappointing under-performance,” he added. “Part of it is a reflection that the packaging sector itself has under-performed the market.

“Like all others it has been badly affected by the rise in polymer costs, and there is generally a very negative feeling towards packaging and towards plastics.”

Rothwell said the big question would be if anyone would want to buy RPC as a whole.

“Most of the big North American players like Graham, if anything, have disappeared from Europe. The beauty part of the business could be of interest to Rexam, but fast-food probably wouldn’t.”

With £100m of debt and equity worth £200m, a buyer for the whole group would “probably have to pay well over £300m”, he said, but servicing the amount of debt needed to fund a deal could be difficult.

And with chairman Peter Williams due to retire soon, Rothwell said bringing in a new chairman who was well-known in the City could help in the search for a buyer.

Paul Jones, a director at Panmure Gordon, said the outcome of the review could be “everything from absolutely nothing to a break-up to putting it up for sale”, and it could “leave them open to bids” from competitors or private equity.

“If they are very confident in what they have been doing and think the company is still undervalued, the management could look at doing an MBO,” he added.

Nicholas Mockett, partner at Europa Partners, said it would be difficult for management, backed by private equity, to raise sufficient funds for a bid, given the lack of money available from acquisition finance houses in the current climate.

He also said it was “difficult to see how the sum of the parts could be greater than the whole” if RPC was to pursue a break-up of the group.

Most potential trade buyers ”won’t be awash with cash”, he added, and their own depressed share prices would make a rights issue difficult. 

RPC’s share price has risen by 9% to more than 200p today following the announcement. However, it is still well below the levels of July 2007, where it hit more than 300p.

When RPC announces its results on 18 June, it is expected to report adjusted profit before taxation of £27.5m, while operating profit before restructuring and impairment costs should hit £38.1m.

Jones said the rising cost of oil was a particular problem for plastic packaging firms such as RPC, but in general “everybody appreciates that packagers are under pressure from customers who are much bigger and more powerful than packaging groups”.

In March, RPC said sales in the second half of the 2007/8 financial year should be higher than the £337m in the same period last year.

The group closed plants in Thornaby, near Middlesbrough, last October, and in Herefordshire in September.

However, it bought Dutch injection-moulder Raytec in October and French blow-moulder Mob in November.

Updates on this story will be published on www.packagingnews.co.uk

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