Cantastic! Ball Corp to buy Rexam for $6.6bn

By Joseph James Whitworth contact

- Last updated on GMT

Related tags: Supply chain, Free cash flow, North america

The transaction will now be scrutinised under merger regulations regarding competition concerns.
The transaction will now be scrutinised under merger regulations regarding competition concerns.
Ball Corporation has announced it is to acquire Rexam for $6.6bn (£4.3bn) ending weeks of speculation.

The transaction is subject to approvals from each company's shareholders and regulatory approvals.

Ball and Rexam acknowledged synergies and benefits which form the rationale for the acquisition could be undermined by potential actions of EU and US antitrust authorities.

The combined company will have pro forma 2014 revenue of $15bn and 22,500 employees across five continents and the deal is expected to be completed in the first half of 2016.

Industries and geography

It will supply the beverage, food, personal care, household product and aerospace industries.

The business will have a presence in North America, Latin America and Europe, and developing regions including South America, Asia and the Middle East.

John A. Hayes, chairman, president and CEO at Ball, said it is just a small part of a big supply chain and competition is significant.

Through this acquisition, it is looking to make the can supply chain more efficient relative to glass and plastic, he added during a conference call discussing the acquisition.

In response to a question from FPD about how the merger will benefit beverage manufacturers, especially those who are also international, he said: "The ability of our customers to get new products into the marketplace is to some extent limited by supply chain considerations, and the packaging supply chain is very inefficient."

"This (the Rexam acquisition) creates a great opportunity for us to locate the manufacturing closer to our customers, thus improving speed to market and just-in-time capabilities. On a global level, we'll be able to better serve customers who are developing new beverages, or want to put an existing beverage into a new package."

Net annual cost synergies of $300m in the third financial year of operations are predicted.

Ball said the combined group would achieve higher standard and specialty unit volumes creating production efficiencies and distribution capabilities in what it described as a 'highly-competitive packaging sector'.

It would be able to take advantage of a broader and balanced production facility footprint in most regions, so it could reduce manufacturing and supply chain costs.

As a result of its increased size, it would also benefit from more efficient sourcing from its metals and other direct and indirect material suppliers.

Scott C. Morrison, SVP and CFO, said: "Ball's existing strong free cash flow coupled with the free cash flow of Rexam will allow us to aggressively pay down debt post-closing as we have done following past highly accretive acquisitions such as Reynolds Metals in 1998, Schmalbach-Lubeca in 2002, US Can in 2006 and the AB InBev plants acquisition in 2009.”

Compete with PET and glass

Ball said the synergies created are ‘critical’ so the group is better able to compete with customers who are turning toward self-supply and to other materials such as PET and glass.

“Certain of Ball and Rexam's global and regional soft drink and beer customers have developed the capability to satisfy a large proportion of their own packaging requirements with aluminium cans and/or PET bottles,” ​it said.

“In many cases, customers operate these beverage packaging manufacturing plants in close proximity to their filling locations, reducing customers' freight and warehousing costs and minimising production delays.”

Ball said the acquisition would boost efficiency and geographic presence to better serve its customers on a stable, long-term basis.

It expects these synergies to be directly proportional to the volume of sales made.

Stuart Chambers, chairman of Rexam, said the proposed combination will bring an enhanced ability to serve the demands of its global customers.

In recent years Rexam's management team has led a transformation of the group, returning approximately £1.5bn of cash to shareholders since 2010 and creating a focused beverage can maker with a promising future.” ​ 

Graham Chipchase, chief executive of Rexam, said it was an "excellent opportunity for all stakeholders​."

The proposed transaction offers our shareholders an attractive premium and an opportunity to participate in the value creation of the combined group through ownership of Ball shares."​ 

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