Orora has entered into a binding agreement to sell its Australasian Fibre business to a wholly owned subsidiary of Nippon Paper, for an enterprise value of A$1.72bn.
Speaking to PKN Packaging News this morning Orora managing director and CEO Brian Lowe said "Orora was not looking to sell, the interest and the bid came from Nippon." The Orora Board declared it “a compelling offer” to shareholders. The sale is expected to be completed early next year.
Lowe went on to say that Orora felt the Fibre business had "reached maturity" under its tenure, but that Nippon with its ability to source its own paper and board "could take the business forward."
The deal values the business at a multiple of around 11.5 times its EBITDA, and adjusted EBIT multiple of times 18.9. The Orora board says these multiples are above current market valuation.
Nippon will be buying a business with 10,000 customers. There are 25 plants and 27 depots across Australia and New Zealand. Revenues in the last financial year were around $1.4bn, with an EBITDA of $137m.
Once sold it will leave Orora with 80 sites in seven countries, with some 3500 staff, and a business with revenues of $3.4bn.
Orora says the deal “fully values the Australasian Fibre business, with reference to the outlook for the business.” It includes the Botany B9 Paper Mill, fibre converting, specialty packaging, cartons, bags, functional coatings and Orora WRS packaging distribution.
Orora expects to receive net cash proceeds from the transaction, after taxes, transaction costs, restructuring costs and customary closing adjustments of A$1.55bn. It will return in the vicinity of A$1.2bn, the majority of the net proceeds, to shareholders, in what it says is "the most efficient way through capital management initiatives".
Once the sale goes through Orora will focus on its Australian beverage business, in which it has the number one market position in cans and glass wine bottles and number two in wine closures and glass beer bottles, and on its North American business, which encompasses both packaging and visual display. It is in the top five in both US sectors, with the fragmented packaging solutions market valued overall at US$50bn, and the visual display market worth around US$10bn, giving Orora plenty of room for growth.
Revenue from North America is now higher than that from Australia. Orora’s last set of full year results saw $2.61bn coming from the US, with $2.15bn from Australasia. At $1.4bn the Australasian Fibre Business had higher earnings than the prior year.
Lowe said: "Today’s announcement represents an exciting new era for both Orora and the Fibre business as it transitions to Nippon Paper.
“Orora Group will retain the market leading Beverage business, which manufactures around 65 per cent of Australia’s wine bottles, is the leading manufacturer of aluminium cans in the Australasian region and has exclusive rights to produce Stelvin wine closures. The Beverage business has a history of sustained growth, innovation and profitability. Orora’s North America businesses likewise operate in attractive segments and, following recent initiatives, are well positioned to drive future growth and cash flow generation."
Signalling potential headcount trimming Lowe said, “As a more streamlined group of businesses, there may be some reduction in roles required to support the Orora Group activities going forward. We recognise the effect that this could have on our people and will be working closely with all potentially affected by today’s announcement."
Nippon Paper is no stranger to Australian shores, a decade ago it bought Australian Paper, the country’s sole manufacturer of copier and printer paper, and of envelopes, for $700m. Nippon is now investing in Australian Paper with a new $600m energy from waste plant for its Maryvale mill. Nippon has annual sales of around $15bn. Its acquisition of Ororoa's Fibre business will be its largest deal outside of Japan.