Silgan Bows Out of Graham Race - Analyst Blog
June 20 2011 - 10:00AM
Zacks
Silgan Holdings
Inc.’s (SLGN) acquisition agreement
with Graham Packaging Company
Inc. (GRM) has been terminated
with Silgan not upping its prior offer within the three days' grace
period leading to Graham accepting Rank Group’s much superior
offer.
Last week, Graham Packaging
had informed Silgan that it is planning to accept a higher offer of
$25 per share, or $1.64 billion, from New Zealand’s Rank Group and
Silgan had three days to come up with a better offer. Graham will
now receive a higher sum of $25.50 per share from Rank Group of
$1.68 billion.
As the Silgan-Graham deal
will not materialize, Graham Packaging will have to pay Silgan a
termination fee of $39.5 million as per their original
agreement.
Graham Packaging is a
leading global supplier of value-added rigid plastic containers for
the food, specialty beverage and consumer products markets. Earlier
in April, Silgan entered into an agreement to acquire Graham
Packaging Company, for approximately $1.3 billion in stock and
cash. Including net debt, the deal ran to approximately $4.1
billion. As per the offer, Graham shareholders would have received
0.402 shares of Silgan and $4.75 in cash for each Graham
share.
On the basis of Silgan's
closing stock price on April 12, 2011, the transaction then implied
a value of $19.56 per Graham share, representing a premium over the
closing price of Graham's stock on April 12, 2011 of approximately
17%. However, this was no match for Rank’s much superior
bid.
The Silgan-Graham
combination came into jeopardy as Graham Group was approached by
Rank Group last Monday with a superior offer of $25 per share. Rank
Group is owned by Graeme Hart, a businessman based in New Zealand
and reportedly the richest Australasian, according to the 2009
Forbes list. Since his 2006 purchase of Carter Holt Harvey, the
entrepreneur has focused his acquisitions on the paper packaging
sector.
Silgan had expected the
deal to be accretive to earnings and cash flow per share in the
first full year of operation. The acquisition would have fortified
Silgan as a premier food and specialty beverage packaging company
with annual sales of over $6.2 billion and 180 manufacturing
facilities across 19 countries.
The acquisition was
expected to result in operational cost synergies of $50 million by
the third year following the combination, if successful. Silgan had
earlier outlined plans to raise debt to fund the acquisition and
meet transaction costs.
Silgan has increased its
sales and market share through acquisitions as well as internal
growth and, in the process, expanded and diversified its customer
base, geographic presence and product lines. Silgan is currently
the largest manufacturer of metal food containers in North America,
hogging approximately half of the U.S. market in 2010.
If Silgan had remained in
the Graham race, it would have ended up paying more than it had
intended. Silgan will overcome this setback and identify other
acquisition opportunities to further strengthen its position. We
currently have a Zacks #2 Rank (short-term Buy recommendation) on
the stock.
Silgan is a leading
manufacturer of consumer goods packaging products operating 68
manufacturing facilities in North and South America, Europe and
Asia. In North America, Silgan is the largest supplier of metal
containers for food products and a leading supplier of plastic
containers for personal care products.
In addition, Silgan is a
leading worldwide supplier of metal, composite and plastic vacuum
closures for food and beverage products. It operates through three
segments, namely Metal Food Containers, Closures and Plastic
Containers. Silgan competes with the likes of
Ball
Corporation (BLL),
Crown
Holdings Inc. (CCK) and privately held
Berry Plastics Corporation.
BALL CORP (BLL): Free Stock Analysis Report
CROWN HLDGS INC (CCK): Free Stock Analysis Report
GRAHAM PACKAGNG (GRM): Free Stock Analysis Report
SILGAN HOLDINGS (SLGN): Free Stock Analysis Report
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