Bemis paying $1.2B for Alcan Packaging assets

NEW YORK - Bemis Co., whose clear plastic packages hold everything from batteries to burgers, said late Sunday it is paying $1.2 billion for the global packaging business of Rio Tinto PLC.

Buying the assets, known collectively as Alcan Packaging Food Americas, gives Bemis 23 facilities in the U.S., Canada, Mexico, Brazil, Argentina and New Zealand, that make flexible plastic containers for cheeses and steaks as well as clear, hard-to-penetrate packages for batteries and toys.

The acquisition extends the market share of Neenah, Wis.-based Bemis over one of its main rivals, Sealed Air Corp., which earlier had looked at acquiring the Alcan assets, KeyBanc analyst Christopher D. Manuel said in a phone call.

The sale of the business by Rio Tinto is the latest by the Anglo-Australian miner to cut its debt, which is about $23.9 billion after raising fresh capital last week through a share issue. Rio Tinto incurred significant debt in its 2007 purchase of Canadian aluminum giant Alcan Inc. for $38 billion.

"The sale of the Food Americas division is the first significant step in reducing the asset portfolio acquired with Alcan," said Guy Elliott, Rio Tinto's chief financial officer. "The transaction represents solid value given the challenging financial environment."

London-based Rio Tinto, the world's third-largest miner, bought Alcan in November 2007 to form the world's largest producer of aluminum and bauxite. The newly combined entity's main rivals are Alcoa Inc. of the U.S. and Russia's Rusal.

So far in 2009, Rio Tinto has announced a total of $3.7 billion of asset sales, including its interest in an aluminum smelter in China, Brazilian iron ore operations and a coal mine in the United States.

Bemis, which reported a total debt of $617.4 million at the end of the first quarter, said it will fund the purchase by borrowing $1 billion and issuing $200 million in stock. The company, which also makes sticky labels, recently had about 103.3 million shares outstanding.

Wall Street appeared to endorse the move, sending shares up in midday trading by more than 4 percent.

Baird analyst Ghansham Panjabi called the deal attractive because Bemis only put up a modest amount of equity to bolster its heft in the still-fragmented flexible packaging industry.

The company said the deal will boost its net sales by 40 percent to some $5.3 billion annually. It will have more than 20,000 employees and 84 manufacturing facilities worldwide. The deal for the Alcan business should also boost earnings, starting next year, Bemis said.

Revenue from Chicago-based Alcan Packaging Food Americas, which had 2008 net sales of $1.5 billion, will start increasing earnings next year, said Bemis, which expects its current payroll of about 20,000 to grow by 4,600.

The deal is set to close late this year pending regulatory approvals.

Bemis CEO Henry Theisen, speaking in a conference call Monday, said that besides more revenue and market share, the acquisition gives his company several proprietary packaging technologies, especially in foil packaging.

Layoffs are likely, as the company cuts "duplicate administrative costs," adjusts product mixes and boosts operational and supply chain efficiency, Bemis said in a statement.

Before the deal, the company consulted with S&P and Moody's to ensure it would retain its investment-grade bond rating, said Theisen, adding that the company will use its "strong free cash flow to support diligent debt repayment."

Bemis shares gained $1.22, or 5 percent, to close at $25.50 Monday, while American Depositary Shares of Rio Tinto tumbled $10.26, or 6.5 percent, to $148.23.

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