Where next for Amcor and Alcan?

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It was the announcement the global packaging industry had been waiting for. Two years after mining giant Rio Tinto paid $38bn for rival Alcan and immediately put its packaging arm up for sale, Amcor will, we finally learned in August, become the new owner of the majority of the business.

With the $2.025bn acquisition of Alcan’s Global Pharmaceuticals, Food Europe, Food Asia and Global Tobacco operations, Amcor will become one of the world’s biggest packaging manufacturers. Sales will reach around $12bn and the business will encompass more than 300 factories employing 35,000 people around the world.

“It redefines Amcor,” says Asim Mullick, a packaging M&A expert and executive director and London-based bank Pöyry Capital. “After this, they will become a truly global player.”

The deal, Mullick argues, fills in many of the gaps in Amcor’s already impressive global footprint. In particular, in China, where it had no presence at all, it will boast the country’s leading flexible packaging producer. Alcan’s relatively strong presence in south-east Asia will complement Amcor’s strong Australian footprint. And in the US, where most of Amcor’s existing sites are devoted to PET bottles, the company will become a major flexibles player.

Announcing the long-awaited deal on 18 August, Amcor chief executive officer and managing director Ken McKenzie gave an upbeat view of how the two packaging empires would gel.

He said the deal would bring “even greater value” to customers through a wider range of product offerings and added: “Critically, beyond the hard assets, the combined company will draw on the best people from both organisations to drive these improvements.”

Rio Tinto chief financial officer Guy Elliott was equally positive, saying that the Alcan businesses would become part of “a leading player in the global packaging sector that is very well placed to enable ongoing success of the businesses”.

It’s hardly surprising that Rio Tinto is happy. It said publicly in October last year that the poor financial environment was delaying the sale and, at its AGM in April this year, admitted that it regretted the slowness of a deal coming to fruition.

Since then it has succeeded in selling its Alcan Food Packaging Americas business to Bemis for $1.2bn in July, and now it has offloaded all but the Beauty arm of its packaging operations. Rio Tinto says it is keen to sell this business, too, although no buyer has publicly come forward as yet.

Sign of recovery?

Moreover, the Amcor deal comes at a time where sizeable acquisitions are tough to complete because of the troubles in the banking sector. Some have therefore welcomed the deal as a positive reflection on the market. Nicholas Mockett, an M&A expert at private equity house Moorgate Capital, says: “It’s good that this deal has happened because it’s not a great environment to do deals in.”

It appears, too, that Rio Tinto has paid a reasonable price for the group, paying a value-to-EBITDA ratio of around five and a half.

Yet while in some areas the deal gives Amcor access to markets where it did not previously have a presence, it’s a rather different story in Europe. Both companies have a large network of flexible packaging plants and it looks likely that a period of restructuring is set to go ahead once the deal is complete.

Amcor itself has hinted that, once it has tied up the acquisition, closures will take place. Synergies, McKenzie has estimated, could save $200m-$250m within three years. In documents about the deal published on its website, the company talks of how it would have to deal with duplication in services and locations around its network of factories. It concludes: “We do not [yet] have all the information we would need to make decisions about any future restructuring. Once we have complete access to Alcan Packaging’s information we would put a transition plan in place.”

Amcor has certainly not shied away from making tough decisions over rationalisation in the past, be that through sales or closures. In 2007, a restructuring plan aimed at increasing efficiencies and profits was put into place in Europe under the moniker ‘The Way Forward’. In the UK alone, where Amcor currently has four flexibles plants and Alcan nine, Amcor has since sold its AF Camvac and AF Baricol sites to management and closed Amcor Flexibles Venus in Ilkeston.

The pattern has been similar across Europe. Indeed, one observer says that Amcor “has set out its stall as the consolidator in European flexibles”. Meanwhile, Amcor has made it a publicly stated strategy to invest in production in lower-cost economies such as those in central and eastern Europe while pulling out of low-margin work in the more established markets.

The deal is unlikely to complete for several months, as negotiations over the deal with Alcan’s works councils and with US and European competition authorities need to take place. But unions who are, unsurprisingly, concerned at the likely impact of the deal on workers are gearing up for some hard negotiations. As this issue of Packaging News went to press, they were seeking meetings with Amcor as a matter of urgency.

Steve Walsh, head of UNI Graphical, the worldwide organisation of trade unions that has members in many of both companies’ plants, says that it is crucial to meet the company to understand what it plans to do and to be able to react to any possible measures. “It’s early days and there are more unanswered questions than answered ones,” he says. “Amcor has moved a lot of plants out of, for instance, the UK and Spain in recent years to lower-cost economies. We will need to sit down with them and find out how trends towards eastern Europe or even China and India could figure.”

Whatever happens, though, Amcor’s acquisition of Alcan will make it a hugely powerful player in the global packaging industry. The path it takes from here remains to be seen. It may have been quite a journey to get to this stage, but, as Europa Partners’ Mockett says: “The work for Amcor starts here.”

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THREE ROUTES TO THE ALCAN SELL-OFF

The Amcor acquisition

Includes Alcan Packaging Global Pharmaceuticals, Alcan Packaging Food Europe, Alcan Packaging Food Asia, Alcan Packaging Global Tobacco

Sales 2008 $4.1bn

Plants 80

Staff 14,000

Countries 28 across the Americas, Europe, Africa, Asia and Australasia

The deal will make Amcor one of the world’s leading packaging groups, with global sales of around $12bn and some 35,000 staff in more than 300 factories around the world. How the company will then seek to rationalise those plants remains to be seen.

The Bemis acquisition

Includes Alcan Food Packaging Americas

Sales 2008 $1.5bn

Staff 4,600

Plants 23

Countries Six across the Americas and New Zealand

The Bemis acquisition of Alcan Food Packaging Americas pushes Bemis’s annual sales to over $5bn and gives it 20,000 employees across 84 factories – another major force, especially in the Americas. It also recently bought Huhtamaki’s Latin American rigid plastics operations in a smaller deal worth €30m. However, Bemis is making its own play to grow while being a consolidator in the American plastic packaging market. Unions are watching closely to see how Bemis will squeeze out savings.

The rest

Includes Alcan Beauty

Sales 2008 $932m

Staff 8,500

Plants 26

Countries 12 across Europe, Asia and the Americas

Rio Tinto is still keen to sell this business but, given the difficulties in the beauty packaging market and the credit crunch, observers say it will be hard to find a trade buyer. Could a finance outfit be waiting in the wings? In more normal economic times, large groups with an interest in beauty packaging such as RPC Group or Rexam could be natural buyers for the company. But, as we know, these are not normal times. Watch this space.

Source: press announcements, Amcor and Alcan websites

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A LONG ROAD

How the sell-off saga unfolded

July 2007 Rio Tinto acquires Alcan for $38bn and earmarks the packaging division for immediate divestment

August 2007 Sealed Air tipped as a likely buyer, but the deal collapses at the last minute due to the credit crunch

April 2008 Indian packaging companies Essel Propack and Ess Dee Aluminium are reported to be putting together a joint bid for Alcan Packaging

September 2008 Amcor and Bemis first mooted as being interested in Alcan’s packaging division. Private equity houses Apollo Global Management and Bain Capital also reported to be in the running

October 2008 Rio Tinto admits that the credit crunch is delaying Alcan Packaging sale

December 2008 New Zealand-based Rank Group’s name enters the fray as a potential suitor for all or part of Alcan Packaging as Rio Tinto says a sale is at an advanced stage

February 2009 Amcor becomes front-runner to acquire the European flexibles operation as it admits talks with Rio Tinto

April 2009 Rio Tinto directors express regret at not moving faster to dispose of Alcan Packaging as Bemis confirms talks over part of the division

May 2009 Alcan Packaging Food Europe divests Turkish flexible films division, Rotoplas

July 2009 Bemis buys Alcan Packaging Food Americas for $1.2bn, leading to increased speculation an Amcor deal is imminent. Competition authorities cited as a potential barrier to an Amcor-Rio deal

August 2009 Amcor announces $2bn purchase of Alcan Packaging Global Pharmaceuticals, Food Europe, Food Asia and Global Tobacco divisions. Alcan Packaging Beauty remains up for sale

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