Rio Tinto Group, the world’s third-biggest mining company, sold part of its Alcan packaging unit to Bemis Co for US$1.2 billion to cut debt.
Bemis agreed to pay US$1 billion in cash and US$200 million in stock for the Food Americas business of Alcan Packaging, London-based Rio said today in a statement. The acquisition will boost earnings from next year, Bemis, the biggest producer of flexible plastic packaging in the Americas, said in a statement.
Rio has raised US$18.9 billion selling assets and stock this year to cut debt that ballooned to US$38.7 billion at the end of last year after acquiring Alcan Inc. The company’s remaining packaging assets could fetch more than US$2 billion based on the valuations used in the sale to Bemis, Citigroup Inc said.
“The continued divestment of non-core assets is positive for Rio as it frees up capital to reduce debt,” Citigroup’s Sydney-based analyst Clarke Wilkins said today in a note to clients.
A repaired balance sheet from the recent rights offer “also allows a stronger bargaining position in the divestment of remaining assets to avoid fire sale prices,” he said.
Rio dropped 2.2 percent to A$48.50 (US$38.2) at the 4:10pm Sydney close on the Australian stock exchange.
Bemis said in April it was in talks to buy part of the Alcan packaging business. The Neenah, Wisconsin-based company has 17 percent of the US flexible-packaging market and Alcan has 14 percent, Royal Bank of Scotland Group Plc said in April.
Food Americas, which has about 4,600 workers at 23 locations in the US, Canada, Mexico, Brazil, Argentina and New Zealand, had sales of US$1.5 billion last year, Rio said.
The sale “is the first significant step in reducing the asset portfolio acquired with Alcan,” Rio’s chief financial officer Guy Elliott said in the statement.
Rio, still seeking buyers for the remainder of the Alcan packaging business and its engineering unit, said it may write down the value of some of these assets when it announces half-year earnings.
“It’s good that in this sort of market that they’ve actually been able to dispose of it,” said Peter Chilton, who manages the equivalent of about US$356 million at Constellation Capital Management Ltd in Sydney.
Chicago-based Food Americas had adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of about US$166 million in the year ended Dec. 31, Bemis said in the statement. The transaction will involve about US$100 million in tax benefits and US$65 million in annual cost cuts, Bemis said.
The sale price “looks reasonable,” at 6.7 times EBITDA adjusted for tax savings, Citigroup’s Wilkins said. The division accounts for about 23 percent of the sales of Alcan packaging, he said.
“This acquisition provides value from all angles and is a prudent investment in Bemis’s future,” chief executive officer Henry Theisen said in the statement.
Bemis on April 28 said it took a one-off charge of US$9.1 million in the March quarter, mostly associated with due diligence fees on the potential acquisition of a portion of Rio’s packaging unit.