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OI Glass, Inc. (NYSE: OI) has just posted its First Quarter 2020 Results (USD) report, with the commentary and data providing a compelling case for why the sale of its ANZ assets will be completed later this year.

Paul Allen, principal of Margin Partners.
Paul Allen, principal of Margin Partners.

The company carries a total debt of $6.4bn, up from $5.9bn one year prior. For the 31 March 2020 quarter end, total net sales fell 4.7% to $1.56bn and net earnings were just $50m or 3% of sales.

Mothballing and shutdowns of select plants across Europe and USA have commenced, with more expected later in the year. It is a bleak outlook and one not supported by ongoing declines in wine and beer glass sales in Australia. This explains why the company remains committed to a “tactical divestitures program” that’s “targeting $400m-500m” to pay down debt.

The report spells out that “due to COVID-19, the company halted the sale process of the ANZ Glass business”, but investors and customers can look forward to the announcement of a “resolution by mid-2020”.

Local management at Goldman Sachs and OI-ANZ declined when asked to provide further comment, but industry insiders point to Visy as the obvious suitor in waiting. It is believed that Anthony Pratt has been waiting for the opportune time to expand his one-stop packaging solutions range to better service an increasingly concentrated domestic beverage and food customer base.

With Orora recently completing a sale of its box division to the Nippon owned Australian Paper, Visy stands to become the sole local producer of cartons, cans, and bottles. It would make for a highly leverageable trifecta.

Making matters more interesting from a sale price perspective is the performance of OI’s Asia-Pacific region, which is primarily attributable to the Australian & New Zealand glass business. Results for the quarter ending 31 March 2020 versus 2019, were as follows:
• Revenue down 4% to $145m,
• Segment operating profit down 35% to $5m
• Segment profit margin of just 3.4%, versus 5.3% in the prior year

This combination of increasing debt, falling profit, and slowing demand on the seller’s side makes for a very attractive buyers’ market on the purchaser’s side.

No doubt all will become much clearer in the very near future.

Paul Allen is the principal of Margin Partners and author of Take Back Your Margin!

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