Rexam buys Brazilian can maker for Â£272m
Saturday 01 November 2003
The packaging maker Rexam said yesterday it had agreed to buy Brazil's leading beverage cans company Latasa for up to £272m.
Shareholders are being asked to fund most of the deal through a deeply discounted rights issue to raise £218m. Rexam has debts of £1.2bn.
Rexam, already joint leader in the world market for beer and soft drinks cans, has agreed to buy 89 per cent of Latasa from the three major shareholders. By a quirk of Sao Paulo stock market rules, it can offer 20 per cent less per share to minority shareholders.
The deal needs regulatory approval in Brazil but Rexam is going ahead anyway since a ruling could take 12 months. Rexam will have 66 per cent of the country's beverage cans but expects a favourable decision because it has only 12 per cent of the total drinks packaging market there.
News of the deal sent the shares 33p higher to 430p. Rexam has spent two years driving a hard bargain that fits its policy that acquisitions must generate cash, be earnings enhancing from year one and give a return that exceeds the cost of capital.
The rights issue is on the basis of two new shares at 255p for every 11 held. Rexam's chief executive, Rolf Borjesson, defended the 36 per cent discount to the previous day's closing price as being a narrower discount than similar recent issues by other companies. He said the issue had been underwritten - at a cost of 1.25 per cent - because he wanted to be certain he would get the money.
Rexam will produce nearly 7 billion cans a year in Brazil in modern factories scattered across the country. There are just two major customers, one of them Coca-Cola, and two major suppliers of raw materials. All contracts are priced in US dollars to reduce currency risks. Mr Borjesson says he can save up to $20m a year by removing overlaps in administration.
Currently there is over-capacity in the Brazilian beverage cans market but Mr Borjesson expects consumption, which stalled after this year's devaluation of the real, will resume its strong upward trend next year.
Karl Green, an analyst at Dresdner Kleinwort Wasserstein, reiterated his buy recommendation for Rexam yesterday, although he described the deal as "undoubtedly risky".
In a trading statement also issued yesterday, Rexam said trading in each of its sectors "remains encouraging" with the exception of cans in Germany, where tough environmental rules introduced this year are biting.
The more settled political situation in Brazil, with the incoming left-wing Lula government proving more moderate than expected, tipped the scales in favour of the Latasa acquisition. Mr Borjesson said: "Inflation is coming down, so are interest rates and consumer confidence is bouncing back."
- 1 Heavy metal producer's corpse to be mutilated by models as per his dying wish
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 3 Nineteen-year-old student left gifts for parents before taking her own life
- 4 Deliberately urinating before sex can increase risk of urinary tract infections
- 5 Winston Churchill: From accusations of anti-Semitism to the blunt refusal that led to the deaths of millions
British Muslim leaders outraged after Eric Pickles says followers of Islam should 'prove their identity'
UK terror fears: My jihadist son returned from Syria mentally scarred – now he is being ignored
Nigel Farage: NHS might have to be replaced by private health insurance
Billy Crystal: 'Stop shoving gay sex scenes in my face'
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
David Cameron says anyone criticising Eric Pickles' letter to Muslims 'really has a problem'
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...