News: AMC UPDATE 1-Australia's Amcor in talks to buy U.S. packaging company Bemis - WSJ, page-4

“I can't wrap my head around why?
Its s very, very big purchase.
Any explanations as to why are welcome”


@Warrigals,

I’ll hazard a guess why.... management hubris.

Of course, what will be sold to the market [*] is the synergy story, with management no doubt eyeing Bemis’s near-US $400m pa of SG&A expenses, which will represent some meaningful duplication of Amcor’s.

But, in terms of bringing any superior operating abilities to bear, based on some of the financial metrics of Bemis, there doesn’t appear to be much that Amcor can teach Bemis in terms of how to run a packaging business:

I know it’s a crude comparison, but while Amcor’s most-recently reported EBIT margin of 10.5% is above Bemis’s 9.4%, this is attributed purely to Amcor’s superior GP Margin (21%, compared to 19.4% for Bemis), presumably because of Amcor’s greater scale.

But in terms of fixed cost management, Amcor’s Cost of Doing Business - to - Sales measure is 11.7%, no better than Bemis’s 11.0%.

In conclusion, based on this admittedly crude, first-pass glance at some relevant metrics, this acquisition doesn’t appear to be to be about Amcor being able to drive value for shareholders in any way other than cutting out some duplicated fixed overheads from the group, post-acquisition.

Doesn’t look like overly inspiring value-accretion for Amcor shareholders, based on the starting multiple being paid, I have to say.

The redeeming aspect is that the transaction appears to be conducted on friendly terms, according to media reports (and with the bid for Bemis taking its stock price to record levels, from the point of view of the Bemis board, why not?


Trouble is, when one company bids for another company at an all-time market value for that other company, then my instincts tell me that is not a good thing for the shareholders of the acquiring company.


[*] The irony is that the market is likely to swallow the “synergy “ line, as it so often does.