Amcor's global vision after Alcan merger

By Rory Harrington

- Last updated on GMT

Related tags Investment Amcor

Plant closures, overhead reductions and improved procurement will be the major platforms for up to A$250m (€154.2m) of savings Amcor forecasts it will realise in the three years following its takeover of Alcan.

Ken MacKenzie, Amcor managing director, said the company preparing for a takeover of this magnitude since 2005 and had had been pruning its portfolio and making divestments in readiness.

The Australian giant also gave an outline of what the new global packaging powerhouse would look like if its US$2.025bn bid for Rio Tinto-owned Alcan Packaging goes through. Some 85 per cent of its business would be conducted outside its native Australasia, it confirmed.

Savings and closures

Speaking at a shareholders’ meeting yesterday, MacKenzie said that 45 per cent of the estimated A$200-250m savings were likely to come from slashing overheads by getting rid of duplicated functions during the first full financial year of the takeover following the acquisition.

A further quarter of the economies would be realised by better procurement practices, through the “harmonisation of lowest prices across the two businesses with the key area of opportunity in raw materials”,​ said the Amcor chief.

The remainder of the savings will come from deciding which plants would be closed in a bid to optimise production and cut costs.

Labelled as “improving the manufacturing footprint”​ of the company, MacKenzie said: “This will take time to achieve. No decisions have been made regarding plant closures.” He forecast these would take place in the second and third years following the Alcan buyout.

Alcan’s global assets

Amcor also spelt out what assets the Alcan takeover would realise and how the company will fund the deal through a mix of 66 per cent equity and 34 per cent debt.

Alcan’s food flexible business in Europe has 31 plants in 18 countries which realised sales in calendar year 2008 of €1.5 billion (A$2.5 billion). The business also has established operations in Eastern Europe, Russia and Turkey, which Mackenzie said would “complement Amcor’s existing operations in higher growth regions”.

He added the Asian Food Flexibles business focuses on the food and beverage industries and is a regional leader with 10 plants in four countries – with 2009 sales of €202m (A$335). Over 85% of these sales are in China and Thailand and the business has recently opened a new plant in India.

Alcan also has substantial pharmaceutical operations - which achieved European sales of €563m in 2008 – as well as being a global leader in folding cartons for the tobacco industry.

Its assets last year totalled €2.8bn with earnings before tax reaching €262m. MacKenzie said Amcor had spent the past four years “preparing for this type of acquisition”​ and had divested assets worth A$1.4bn in readiness.

Benefits

The Amcor chief said the acquisition would give the company truly global coverage, giving it broader manufacturing flexibility, improved security of supply as well as greater potential for innovation and development of new technologies.

The combined companies would have strong cash-flow and be well capitalised, making it capable of “absorbing the anticipated market growth over the next few years”, said MacKenzie.

He added that some 80 per cent of its sales will come from flexibles, PET and folding cartons for tobacco segments. From a geographic perspective, the post-merger giant would have around 35% of sales in Europe, 30% in North America, 15% in Australasia and importantly, 20% in emerging regions.

“From a strategic perspective, it is a strong fit with our nominated growth segments,” said ​ Mackenzie. “It enhances our footprint in emerging markets and creates complementary positions in a number of the developed regions.”

Related topics Processing & packaging

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