Rexam Acquires Owens-Illinois Unit for $1.83 Billion

Rexam Plc, the world´s largest maker of beverage cans, will acquire the plastics business of Owens- Illinois Inc. for $1.83 billion, adding as much as 50 percent to its sales in the industry.

The purchase gives Rexam a unit that generated $772 million of sales last year from 18 plastics plants in the U.S., Mexico, Brazil, Hungary, Singapore and Malaysia. The acquisition will be financed by equity and debt as well as the proceeds from the sale of its glass division, London-based Rexam said today in a statement. Shares of the company fell. By expanding in plastics after selling its glass division in March, Rexam, a maker of packaging for companies including Givenchy and L´Oreal SA, may bolster its return on sales. The company´s existing plastics unit posted an 11.4 percent return on sales last year, compared with 8.2 percent for glass. The company paid more for the Owens-Illinois unit than the $1.8 billion maximum estimated by stockbroker Seymour Pierce Ltd.

Rexam "may struggle to get any meaningful enhancement´´ at the agreed price, Kevin Lapwood, an analyst at Seymour Pierce in London who has a ``hold´´ rating on the shares, said in an interview. Shares of Rexam fell as much as 19.5 pence, or 3.8 percent, to 492 pence and traded 2.9 percent lower at 496.5 pence as of 10:04 a.m. in London. That takes their decline this year to 5.5 percent, valuing the company at 2.89 billion pounds ($5.7 billion). This "will transform our plastic packaging business and is consistent with our strategy to expand our positions in growth markets," Chief Executive Officer Leslie Van de Walle said in today´s statement.

Higher Cost

Shares of Owens-Illinois climbed 19 cents, or 0.6 percent June 8, giving the company a market value of $5.1 billion. Toledo, Ohio-based Owens-Illinois in January said it might sell the plastic-packaging unit, where profit last year fell 10 percent to $114.5 million. Plastic packaging accounted for 10 percent of sales last year, with the rest coming from glass containers. The company has $8.31 billion of bonds and loans outstanding. The cost of the purchase was estimated by Seymour Pierce at between $1.2 billion and $1.8 billion. Wachovia Capital Markets expected a price closer to $1.5 billion. Rexam said it will sell stock equivalent to about 9.9 percent of its share capital to finance the purchase. It will also offer subordinated bonds in a sale managed by Barclays Capital and Citigroup Inc. Rexam´s debt is rated Baa3 at Moody´s Investors Service, one step higher than high-risk, or junk, status. Standard & Poor´s rates it one level higher at BBB. "The acquisition will be an excellent fit," producing synergies of about $40 million a year by 2010, Rexam said in today´s statement. Credit Suisse Group advised Rexam on the purchase of the Owens-Illinois unit.