Silgan Holdings Inc. (SLGN) has entered into a definitive agreement to acquire Graham Packaging Company Inc. (GRM), for approximately $4.1 billion, including debt. Silgan expects the acquisition to be accretive to earnings and cash flow per share in the first full year.
Graham Packaging is a leading global supplier of value-added rigid plastic containers for the food, specialty beverage and consumer products markets. As per the offer, Graham shareholders will receive 0.402 shares of Silgan and $4.75 in cash for each share of Graham, representing a total enterprise value, including net debt, of approximately $4.1 billion.
On the basis of Silgan’s closing stock price on April 12, 2011, the transaction implies a value of $19.56 per Graham share, representing a premium over the closing price of Graham’s stock on April 12, 2011 of approximately 17%.
The acquisition will fortify Silgan as a premier food and specialty beverage packaging company with annual sales of over $6.2 billion and 180 manufacturing facilities across 19 countries. Silgan expects to realize operational cost synergies of $50 million by the third year following the combination. These synergies will be achieved primarily through reductions in administrative expenses, procurement savings and a more efficient manufacturing cost structure.
Silgan plans to raise debt to fund the cash portion of the acquisition and meet transaction costs. The deal has been approved by both Silgan’s and Graham’s boards of directors. The acquisition is currently expected to close in the third quarter of 2011, subject to the approval by both the companies’ shareholders, regulatory bodies and other customary closing conditions.
Silgan is currently the largest manufacturer of metal food containers in North America, hogging approximately half of the U.S. market in 2010. Silgan has increased its sales and market share through acquisitions as well as internal growth and, in the process, expanded and diversified its customer base, geographic presence and product lines.
The Graham packaging acquisition will enhance Silgan’s ability to cater to the important markets of food, specialty beverage and consumer products , which are known for their stable demand with large, growing multi-national customers with multiple rigid packaging options.
The company is currently undertaking diverse corporate development activities, including manufacturing efficiencies, which are likely to fetch incremental volumes across segments. We expect volumes to gradually recover with the improving economy. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
Silgan is a leading manufacturer of consumer goods packaging products operating 68 manufacturing facilities in North and South America, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products.
In addition, Silgan is a leading worldwide supplier of metal, composite and plastic vacuum closures for food and beverage products. It operates through three segments, namely Metal Food Containers, Closures and Plastic Containers. Silgan competes with the likes of Ball Corporation (BLL), Crown Holdings Inc. (CCK) and privately held Berry Plastics Corporation.
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