Hart tops rival bid for plastic lids business

Graeme Hart File photo

Billionaire packaging magnate Graeme Hart has trumped a rival suitor for Graham Packaging Co with a cash and debt offer of US$4.5 billion for the American maker of plastic lids.

Hart's Reynolds Group Holdings has negotiated "definitive terms and conditions" to buy Graham for US$25 a share, or US$1.64 billion cash, and assume the target's debt, it said in a statement.

Reynolds would finance the purchase with up to US$5 billion of new debt and from existing cash.

York, Pennsylvania-based Graham said Hart's offer is "superior" to a rival cash and scrip bid from Silgan Holdings, and it plans to change its recommendation in favour of the New Zealander's proposal.

Shares of Graham climbed 2.5 per cent to US$26.28 on the New York Stock Exchange, suggesting some investors are betting a takeover battle has further to run.

As part of the deal, Reynolds will repay Graham's existing credit facilities, but hasn't decided whether to retire the target's senior unsecured notes and senior subordinated notes.

The transaction would close in the second half of the calendar year, subject to regulatory and shareholder approvals, it said.

Last month, Reynolds added Canada's Dopoco Inc. for some US$398.1 million in cash, helping cement Hart's position as the world's No. 2 food and drink packaging investors after Sweden's Tetra Laval.

The purchase brings Hart closer to being the world's No. 1, with Tetra's annual revenue at 9.99 billion euros (US$14.4 billion) and his sales set to rise to US$12.8 billion based on the latest figures from Reynolds and Graham.

His packaging empire had US$16.64 billion of total assets with US$12.58 billion of total borrowings as at March 31, according to financial statements.
In February, Reynolds refinanced some debt, raising US$2 billion through two senior note issues to extend the company's maturity profile, reduce interest expense, and relax a covenant around its debt-to-earnings ratio.

Reynolds expects the deal will increase its leverage ratio by some 0.5 times pro forma adjusted earnings before interest, tax, depreciation and amortisation.

That may ultimately lift its cost of borrowing after rating agency Moody's Investors Service said in February the high level of debt to earnings weighed on its risk profile, and further acquisitions could result in a downgrade its Ba3 rating.

Reynolds made a loss of US$46.7 million in the three months ended March 31, compared to a loss of US$37.3 million a year earlier. Most of that came from finance costs more than doubling to US$279.9 million from the same quarter a year earlier. Adjusted EBITDA, its preferred measure, increased 18 per cent to $416.9 million on a 68 per cent boost in revenues to US$2.37 billion.

The deal comes as Hart's primary vehicle, Rank Group, is actively searching for new add-ons to his new auto-parts business, having already spent US$2 billion on American businesses this year.

Rank started the new venture in January, spending US$320 million in cash and equity, and taking on some US$700 million to buy UCI Holdings.

Just a day after the UCI deal was completed, Hart paid some US$950 million in cash for Honeywell International's rival auto-parts unit, Consumer Products Group.

Closer to home, reports have surfaced that Hart is looking to sell Carter Holt Harvey Ltd.'s pulp, paper and packaging assets to meet a $3 billion five-year loan put in place to fund the takeover in 2006.

In February, Carter Holt sold some 17,300 hectares of forestry in the Central North Island for a confidential sum to Te Waihou Plantations, whose directors are executives of Global Forest Partners LP.

That's the American timber investor that bought 67,000 hectares from Carter Holt in 2007 in a joint venture with Weyerhaeuser Co. Global Forest Partners also holds the mandate to manage the New Zealand Superannuation Fund's global timber assets.