By Rory Gallivan
LONDON-- Ball Corp. has agreed a GBP4.4 billion ($6.7 billion)
acquisition of Rexam PLC after the board of the U.K.-based can
maker accepted a sweetened takeover offer to create one of the
world's biggest players in the consolidating consumer-packaging
industry.
The acquisition, if approved by shareholders and regulators,
could create a heavyweight rival for Philadelphia-based Crown
Holdings Inc. which has just completed an important acquisition of
its own, Empaque, a Mexican can and bottle maker, bought from Dutch
brewer Heineken NV for $1.23 billion.
Rexam said on Thursday that its board has recommended the
improved takeover offer from the 135-year-old, Broomfield,
Colo.-based company.
The offer, made up of 407 pence a share in cash and 0.04568 of a
new Ball share, values Rexam at 628 pence a share. The offer price
is some 3% better from Ball's original 610 pence-a-share approach ,
and a 40% premium to Rexam's price before the initial offer was
made Feb. 5.
Ball's purchase would combine two of the world's largest can
makers, which together with Crown, account for more than 60% of
global beverage can volumes, and close to 90% in Europe, North and
South America, according to Rexam's website. Rexam's customers
include customers include Coca-Cola Co. and PepsiCo Inc.
"The combination of Ball and Rexam creates a global metal
beverage-packaging supplier capable of... generating significant
shareholder value," said Ball Chief Executive John Hayes in a
statement.
Analysts have expressed concern the deal could run into
regulatory problems because of the companies' high market shares in
territories such as the U.S., Europe and Brazil.
Rexam Chief Executive Graham Chipchase said he is confident
regulators will approve the deal despite the two companies' large
share of the global market. "Ball [is] very strong in South East
Asia in China, we're very strong in places like Russia and northern
Europe...there's not as much overlap as you might think," Mr.
Chipchase said.
Rexam has negotiated a "break fee," requiring Ball to pay GBP302
million, equivalent to 7% of the deal's value, to Rexam should the
tie-up falls through for regulatory reasons.
While the transaction remains subject to regulatory approvals,
Ball expects that it will get the necessary clearances in the first
half of 2016. One of the conditions of the deal going ahead is that
regulators don't require the combined company to dispose of assets
worth more than $1.58 billion a year in revenue, Ball said.
Ball said the two companies have complementary product offerings
and strong cultural compatibility, and that the combined company
would have pro forma 2014 revenue of about $15 billion and
approximately 22,500 employees across five continents.
The U.S. company said the deal would achieve $300 million of
synergies by 2018, cutting costs in areas such as administration,
sourcing and freight and logistics. Rexam's Mr. Chipchase said it
was too early to give details of any redundancies if the takeover
goes ahead or of the management structure of the enlarged
group.
News of the higher offer came as Rexam reported a net profit of
GBP357 million for the year ended Dec. 31, up from GBP95 million
the previous year, despite lower revenue of GBP3.83 billion,
compared with GBP3.94 billion in 2013.
Initial reaction from analysts indicated Rexam shareholders are
doing well out of the transaction. "We think this is a good deal
for Rexam shareholders," said analysts at Oriel Securities, noting
pressures it faced as a stand-alone business such as high aluminum
prices, currency volatility and pricing pressure from
customers.
Tough conditions would have made it difficult for Rexam to fight
for a higher offer, said analysts at Jefferies. Rexam's strong
performance compared with rivals in some markets may have helped
Rexam argue for a higher offer than the initial 610 pence-a-share
proposal.
Write to Rory Gallivan at rory.gallivan@wsj.com
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