Deutsche bank analyst Mark Wilson said recent industry changes could see Amcor expand its takeover targets from emerging to also include developed markets as economic woes pushed packaging firms in Europe and the US to offload non-core operations.
Divisions from Rexam, Nordenia and Berry Plastics may all present attractive opportunities for cash-rich Amcor, Wilson forecast.
“While we had been of the view that the company's focus would be on the emerging markets, more opportunities have been appearing in the developed markets as companies seek to divest non-core assets and as private equity owners seek to restructure their interests,” he said.
He said that Rexam’s high barrier food business would be a “very good fit” for Amcor. The business is part of Rexam’s Personal Care plastics division, said to be worth around £350m, which the UK firm has said it may look to sell. Wilson said the food unit and could be sold off separately.
Oaktree commencing a sale process for Nordenia, Berry Plastics filing a US$500m IPO application and Constantia Packaging, in seeking to issue a €150m bond to fund acquisitions in new markets and refusing to rule out an IPO, could all attract Amcor’s attention, he suggested.
Better return on buyouts
The analyst forecast that a sensibly-priced takeover could yield almost twice the return of a share buyback exercise.
“We estimate Amcor has surplus balance sheet capacity of ~A$1.7bn and an acquisition could be EPS accretive by 6-19%, which compares to 10% for a share buyback,” he added as he said the bank retained its “buy” rating on the company.
Wilson said: “We have analysed the merits of an acquisition(s) as opposed to returning capital to shareholders, and we conclude that acquisitions are preferable provided the acquisition price is reasonable and the company can attain targeted synergy benefits.”
The financial expert also estimated that Amcor had demonstrated its ability to weather the economic headwinds thrown up by the latest financial downturn.
“While there may be some renewed concerns about a slowdown in Europe and rising raw material costs, we believe Amcor has already displayed the defensiveness of its European business portfolio, its moderate exposure to some of the more severely impacted regions, and its ability to successfully pass through higher raw material costs to its customer base,” said the broker.
Deutsche estimated Amcor had spent US$310m on takeovers in the last 9 months. Its latest buyout of Australian rival Aperio was completed earlier this month.