Irish-led bottle and can maker Ardagh Group intends repaying some of its $8 billion debt (€7.1 billion) with the $2.5 billion (€2.2 billion) that it is due to earn from a deal with rival Exal.
Ardagh said on Monday that it is merging part of its food tin business with Exal to create a new multi-national packaging group, Trivium, in a deal that will see the Irish-led company receive $2.5 billion in cash.
In a statement, Ardagh pledged to use the money to repay some of its debt, which was $8.077 billion at the end of June, although analysts expected this to have fallen to about $7.3 billion (€6.4 billion) by the end of the year.
Led by Irish businessman Paul Coulson, Ardagh is a global manufacturer of bottles, cans and tins for the food industry, selling its products to the likes of John West, Coca Cola and Heineken.
Exal makes similar products. It clients include food groups Kraft and Mondelez, as well as Budweiser brewer, AB Inbev, which is also a customer of Ardagh.
Ardagh’s food and speciality metal packaging division, which it is merging with Exal, will contribute $2.4 billion (€2.1 billion) of Trivium’s $2.7 billion a year sales, and $355 million (€315 million) of its $469 million (€416 million) earnings.
While the Ardagh businesses will contribute the bulk of Trivium’s sales and earnings, the group will own 43 per cent of the new venture.
Cash payout
Exal's owner, Canadian retirement fund, Ontario Teachers' Pension Plan, will own 57 per cent. Analysts say that this is why Ardagh is also receiving a $2.5 billion cash payout.
Trivium confirmed later on Monday that it planned to borrow $2.75 billion, chiefly to fund the payout to Ardagh but also to refinance part of Exal’s existing debt.
The new venture must raise this cash as a condition of the deal going through. Regulators must also approve the merger.
Assuming all conditions are satisfied, Ardagh and Exal expect to complete the deal in the final three months of this year.
Trivium will be based in the Netherlands and employ 7,800 people in 57 factories across Europe and the Americas. Mr Coulson, Ardagh's chairman and chief executive, will chair the new business while Exal chief executive Michael Mapes will take that role at the venture.
Flor O’Donoghue, an analyst at Irish stockbroker Davy, noted that the company would supply the food, pet food, beauty, household care and drinks industries.
Ardagh and Exal expect that merging the two businesses would save $40 million (€36 million) a year in manufacturing and other costs. Mr O’Donoghue calculated that this was around 1.5 per cent of revenues.
Trivium also hopes to boost its share in parts of the market that offer higher profits, such as aerosols and nutrition.
Lina Sanchez and Desiree I Menjivar, analysts with credits ratings agency, Standard & Poors, pointed out that Trivium could be vulnerable to volatile raw materials costs, and would be smaller than US peers such as Ball Corporation and Crown Holdings, which both have sales of more than $11 billion (€9.77 billion).
Mr O’Donoghue said that the food and metal speciality packaging division that Ardagh is merging into Trivium accounted for 26 per cent of the Irish-linked group’s total revenues, which are about $9 billion (€7.9 billion).
The business was originally part of Impress, which Ardagh bought in 2010 for $1.7 billion (€1.5 billion) in one of several acquisitions that made it a big player in the global food and drinks packaging industries.
Mr Coulson described the merger as “a combination of two highly complementary and well-invested businesses”.
Mr Mapes noted that Trivium was being established at a time when metal packaging was poised to help address sustainability problems confronting “consumers, brand owners and governments”.
