Hart’s Reynolds Group posts loss as Pactiv shareholders sue over deal

The results came in the same week as it emerged that a group of shareholders in Pactiv have filed a lawsuit against Hart’s Rank Group, Reynolds and Pactiv itself over the bid.

Revenues at the business, which is registered in Luxembourg but whose bonds trade on the Irish Stock Exchange, climbed 10% in the first six months of the year to EUR2.1bn thanks to improved demand in developing markets such as Asia and South America.

However, it posted a pre-tax loss of EUR81.7m, compared to a pre-tax profit of EUR83m the previous year. Net losses for the period stood at EUR103.3m.

Sales up, input costs up
The company’s presentation to shareholders this week highlighted that improvements in second-quarter sales at carton giant SIG had been “partially offset” by increased raw materials prices.

It also said that increasing materials prices in its Reynolds Consumer business had contributed to a 14% second-quarter slump in EBITDA profits.

Reynolds Group chief executive Tom Degnan told analysts in a conference call: “There have been higher resin costs in the quarter; but if resin doesn’t move [in the coming months] there will be a benefit from that.”

He added: “SIG is stable in Europe and we’re continuing to see strong growth in Asia and South American emerging markets.”

SIG announced in June that it was planning to build a EUR90m facility in Brazil to produce cartons, its first production plant in Latin America. 

The announcement of results comes in the wake of last week’s $6bn bid for Pactiv by Reynolds Group, which is owned by the Rank Group Investments business of Graeme Hart, Australasia’s richest man.

Degnan said that the deal was expected to close before the end of the year. A second acquisition announced last month of Reynolds Foodservice is expected to close during September.

Illinois lawsuit over deal
However, Reynolds has faced criticism from shareholders over the level of debt it is taking on in the Pactiv deal – the company is looking to raise some $4bn of new debt to fund the acquisition and would only put up between $500m and $750m of equity itself.

One shareholder group has, according to reports in the US, responded to the bid by filing a lawsuit against Reynolds, calling the bid “fundamentally unfair” to shareholders.

The pension fund – a plumbers and pipe-fitters union plan – filed its case in Illinois state court in Chicago on Wednesday.

The suit includes Pactiv, chairman Richard Wambold, seven board members, Rank Group Investments and Reynolds Group.

The union plan said that the price offered – $33.25 per share, around a 30% premium on its trading price – was fundamentally unfair and company directors had breached their fiduciary duty to shareholders by undervaluing the company.

REYNOLDS GROUP H1 2010
EURm, six months to 30 June 2010

Sales 2,104.5 (2009: 1908.7)
Operating profit/loss 182.7 (241.6)
Pre-tax profit/loss 81.7 loss (83.0 profit)
Net profit/loss 103.3 loss (35.2 profit)

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