Financier Paul Coulson faces questions next week from bond investors on how the heavily-indebted Ardagh Group plans to fund what would be its biggest deal to date, as it is said to be closing in on up to $4 billion (€3.5 billion) of assets.
The maker of glass bottles and tin cans has emerged as the leading bidder for mainly beverage-can manufacturing plants being sold by US packaging group Ball Corp and UK peer Rexam to satisfy competition authorities ahead of their planned $6.7 billion merger, Bloomberg News reported yesterday. A preferred bidder for the assets may be picked at early as this week.
With Ardagh’s net borrowings at €4.8 billion at the end of 2015, or 5.2 times its earnings, any deal is likely to fuel pressure on Mr Coulson to reignite plans for an initial public offering of part or all of the group, according to David Holohan, chief investment officer at Merrion Capital.
Ardagh, which is focused on the European and North American markets, pulled an IPO of its metals unit in New York last year amid turbulence in equity markets. Mr Coulson has spoken of listing the overall company as well.
“Can Ardagh, which is heavily indebted and in deleveraging mode, really afford to take on more borrowings to buy this asset? The market will be looking for a lot of comfort on how it plans to finance such a deal,’’ said Mr Holohan.
“I think the assets that may be acquired would form a global giant within the sector, forming a very complete business, making the company a more attractive investment for equity investors, given that it would not need to make further acquisitions into the future,” he said.
Mr Coulson told Ardagh bond investors in February the company was circling the Ball-Rexam assets but that it was “very conscious of not over-leveraging the situation”. He said the assets would fit in very well with Ardagh’s existing businesses in Europe and North America.
“We have been very conservative and careful in our approach to acquisitions,” Mr Coulson said at the time. “It is three years now since we bought anything, so we are very conscious of making sure that we create value for our stakeholders, our bondholders and our shareholders.”
US private equity firms Apollo Global Management, Blackstone Group and Madison Dearborn Partners, which acquired the then Jefferson Smurfit Group in 2002, were also reportedly among bidders for the Ball-Rexam assets that are up for sale. They are estimated to be worth between $3 billion and $4 billion.
The market interest rate, or yield, on Ardagh’s €1.15 billion of bonds due for repayment in 2022, fell from a high of 5.1 percent in February to 3.4 per cent last month, amid a broader recovery in high-yield, or “junk”-rated debt. However, the yield rose more than 0.2 percentage points yesterday on news of how advanced Ardagh was in the race for the Ball-Rexam assets, to over 3.8 per cent.
Mr Coulson took over as chairman of Ardagh, which traces its roots back to the 1932 foundation of the Irish Glass Bottle Company, in 1998. Through a series of 10 debt-backed acquisitions, he subsequently turned it into a packaging giant with 89 glass and metal manufacturing facilities in 21 countries.
