Consumer goods packager Silgan Holdings Inc. said it will pay $1.3 billion in cash and stock to acquire smaller rival Graham Packaging Company Inc., Reuters reported. Private equity firm Blackstone holds a 61% stake in Graham Packaging. The acquisition, valued at $4.1 billion including debt, will help Silgan boost the number of manufacturing facilities in the Americas, Europe and Asia, Reuters reported.
(Reuters) – Consumer goods packager Silgan Holdings Inc said it would buy smaller rival Graham Packaging Company Inc for about $1.3 billion in cash and stock to tap growing demand for plastic containers globally.
The deal comes days after private equity firm Blackstone, which holds a 61 percent stake in Graham, received the European Union’s approval to buy Spanish food cans maker Mivisa from CVC .
Graham shares were trading up 22 percent at $19.25 in pre-market trade. They closed at $16.71 on Tuesday on the New York Stock Exchange. Shares of Silgan were up 7 percent.
The acquisition, valued at $4.1 billion including debt, will help Silgan boost the number of manufacturing facilities in the Americas, Europe and Asia.
“This acquisition will provide significant cost synergies, while efficiently utilizing the debt capacity of our balance sheet,” Silgan CEO Tony Allott said in a statement.
Silgan expects to cut operational costs by $50 million by the third year following the deal.
Graham shareholders will receive $4.75 in cash per share and 0.402 shares of Silgan common stock. The offer is valued at $19.56 per share, a premium of 17 percent to Graham’s Tuesday closing price.
As of Tuesday’s close, Graham’s shares traded at a forward earnings multiple of 9.65 times, while Silgan’s offer values the stock at more than 11 times 2011 earnings.
Stamford, Connecticut-based Silgan said the deal would generate about $500 million in free cash flow, or about $5 per share, and would add to earnings in the first full year after the completion of the deal.
Since 1987, Silgan has bought 25 businesses, boosting its U.S. metal food container market share to around 50 percent.
The company was founded in 1987 and it makes tins for Campbell’s Soup, Del Monte Fruits and Vegetables and Friskies Pet Food.
Graham, which reported annual sales of $2.51 billion in 2010, makes custom blow-molded plastic containers for consumer products.
BofA Merrill Lynch acted as financial advisor to Silgan. JPMorgan Securities advised Graham. (Reporting by Megha Mandavia; Editing by Saumyadeb Chakrabarty) (email@example.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging; firstname.lastname@example.org))