Ball Corporation In $6.85B Sweetened Deal To Acquire Rexam PLC

Ball Corporation In $6.85B Sweetened Deal To Acquire Rexam PLC

Ball has reached a GBP 4.4 billion ($6.85 billion) deal to buy UK rival Rexam, paving the way to create one of the world’s biggest players in the consolidating consumer-packaging industry.

The board of the UK beverage-can maker has recommended the takeover by the Broomfield, Colorado-based Ball.

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Ball – Rexam: Low-down on the deal

The deal between the world’s two largest beverage can makers by volume envisages Rexam shareholders getting 407 pence in cash and 0.04568 new Ball Corp. shares for each Rexam share held, amounting to a total of 628 pence per share.

Shares in Rexam, which has to its credit Coca-Cola and Anheuser-Busch InBev as clients, rose over 6% to 571.5 pence in early trading before falling back, though significantly below the indicated price of 628 pence per share. The offer represents a 17% premium to Rexam’s Wednesday close. The U.S. drink-can maker’s shares closed at $77.16 on Wednesday.

Rexam shareholders would own about 19% of Ball’s shares upon closing of the deal, while the deal was anticipated to add to Ball’s earnings within the first full year of completion.

According to Morningstar analysts, together the companies account for 60% of the beverage can supply in North America, 69% in Europe and 74% in Brazil. Rexam and Ball Corp. each control slightly more than a fifth of the global market, while their nearest competitor, Crown Holdings, has a 19% share.

Rexam said it had negotiated a break fee of 7% of the deal value, or about 300 million pounds, if the deal fell through due to antitrust issues.

Deal would achieve $300 million synergies

Exuding confidence over the deal, Ball Chief Executive John Hayes said in a statement: “The combination of Ball and Rexam creates a global metal beverage-packaging supplier capable of… generating significant shareholder value”.

The deal is expected to create an industry giant that can better manage capital spending and costs as aluminum premiums rise. Can makers currently have to contend with record-high aluminum premiums and the cost of getting the metal out of storage is anticipated to peak again by mid-2015.

Ball Corp said the deal would achieve $300 million of synergies by 2018, trimming costs in areas such as administration, sourcing and freight and logistics.

Some analysts have expressed concern the deal could run into regulatory problems due to the companies’ high market shares in territories such as the U.S., Europe and Brazil. However, Rexam Chief Executive Graham Chipchase expressed confidence that regulators will approve the deal despite the two companies’ large share of the global market. He pointed out that while Ball Corp is very strong in South East Asia in China, Rexam is strongly placed in Russia and northern Europe.

If the deal is approved by shareholders and regulators, it would rival Philadelphia-based Crown Holdings, which has recently completed an important acquisition of its own, Empaque, a Mexican can and bottle maker, bought from Dutch brewer Heineken NV for $1.23 billion.

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