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After 13 Years, Blackstone May Finally Exit Graham Packaging

The Blackstone Group, after a 13-year hold, appears to be finally selling Graham Packaging.

Today, Silgan Holdings agreed to buy Graham for about $1.3 billion in cash and stock. Including debt, the transaction is valued at about $4.1 billion.

York, Pa.-based Graham makes plastic containers that are used for various products including sports drinks, nutritional supplements and beer. The company has been up for sale for some time, one banker told me. Ardagh Group, of Ireland, was reportedly interested at one point.

“There are not that many strategics large enough to buy Graham,” the banker says. The large size of the deal also curtailed PE involvement, the source says.

The deal is seen as boon for Silgan, of Stamford, Conn., which makes packaging products for consumer goods. However, Silgan may have to raise $4 billion in debt to acquire Graham, according to Bloomberg. Silgan, has been levered before and has been able to pay down its debt, another banker says.

Silgan, which had $3.1 billion in 2010 sales, has been more focused on metal cans but is in plastics, bankers say.

“This is a big move,” the first source says. “It substantially broadens [Silgan’s] business in containers.”

On Tuesday, Graham’s shares rocketed $5.03, or 30%, to $30.10 in afternoon trading. Silgan’s stock also surged, adding $6.13, or 16.64% to $42.96.

Graham has been a very long hold for Blackstone, which acquired the company in 1998 in a $997 million deal (Blackstone reportedly invested $208.3 million equity). Typically PE firms own portfolio companies for 5 to 7 years but Blackstone held onto Graham for roughly 13 years.

Blackstone has tried several times to exit Graham by taking it public. In 2004, Graham planned to launch an IPO but pulled the deal after buying the blow-molded plastic container business of Owens Illinois. Graham, four years later, tried again to go public when it agreed to a $3.2 billion sale to Hicks Acquisition Co., the blank check company from Thomas Hicks. The deal included a $350 million payout for company shareholders.

Hicks eventually called off the buy of Graham due to cash flow problems, according to press reports.

Last year, in February of 2010, Blackstone successfully took Graham public. The PE firm did not sell shares in the IPO and owned about 40.3 million shares or 64.4% in Graham by April 2010, according to regulatory filings. In Sept. 2009, Graham had about $2.4 billion in debt.

Graham, in September 2010, acquired Liquid Container for $568 million. The company had $2.8 billion in long-term debt at that time, according to a press release.

In November, the company filed to sell 6.5 million shares via a secondary. The Graham family, which had owned about 7.6 million shares or 11%, sold most of its stake. The family reduced its holding to 1.9% from 11%. The Blackstone Group, which owned 40.3 million shares or 64%, did not sell shares.

Graham was a challenging exit for Blackstone, the second banker says. Over the years, the PE firm held conversations with several different packaging companies in its attempts to sell Graham, the source says. “They had trouble getting out of it,” the banker says.

BofA Merrill Lynch advised Silgan while JP Morgan provided financial advice to Graham Packaging.