re: takeover rumours....michael west Hungry Hart has his eye on...

re: takeover rumours....michael west Hungry Hart has his eye on Amcor
Michael West
June 23, 2006
THERE is one thing almost as certain as death and taxes, and that is Kiwi corporate raider Graeme Hart having another very large punt. And that punt may well be on packaging group Amcor.
Amcor has appointed investment bankers to advise on its restructuring and asset sales process. And the asset Hart wants most is Amcor's $700 million fibre packaging business.

If he can't prise it out of Amcor he may launch a hostile takeover bid and break the packaging group up. Amcor is vulnerable, Hart is cashed up.

Hart - who brought Burns Philp back from the dead to win a bellicose $2 billion battle for Goodman Fielder, followed up with a refloat of Goodman and a $3 billion takeover of Carter Holt Harvey - has a problem.

Carter Holt's lining board plant in New Zealand is struggling, its margins carved to bits by low-cost competitors in the Asian market. Were it to combine with Amcor's corrugated-box operations, however, it would deliver the scale and value-added corrugated-box product to turn the business around. We're talking synergy gains of $300million-plus.

The hazards of a move on Amcor are many, but the Australian Competition and Consumer Commission is probably not one of them. Between them, Amcor and Dick Pratt's Visy Group control 90 per cent of the packaging market in Australia with Carter boasting just 5 per cent of the box business.

Although Telecom New Zealand has been bandied about by the Kiwi newspapers as a possible target, Amcor makes a lot more sense.

From a funding perspective, Hart could comfortably dig up the $7 billion needed to swallow Amcor. Amcor's market cap is $6 billion and Hart has $3 billion cash in Burns Philp thanks to the recent sale of Uncle Toby's to Nestle for $890 million.

Then there's the plan to sell $1.3 billion worth of Carter Holt's forests, flagged just days ago. He's got cash, and scrip. And that cash can be geared up to $10 billion with no shortage of bankers pandering to finance the savvy entrepreneur's next corporate play.

As for Amcor, this is a private equity gem. It's in the wrong part of the cycle, or the right part if you're a vulture capitalist: a victim of rocketing fuel and raw materials prices still reeling from the big ACCC cardboard box pricing sting, Amcor has been plodding along since it lashed out with the $2.9 billion Schmalbach Lubeca acquisition in 2002.

As if the $1.25 billion goodwill on the German deal was not punishing enough, Amcor has been unable to pass on rising resin prices - the key component of its PET manufactures - to its customers, copping the margin erosion smack on the chin. This is the flipside of the oil and resources boom.

Macquarie Equities put out a break-up valuation on the stock last month, pricing the sum of the parts at $7.55 a share and noting the Hart acquisition of Carter Holt could lead to a rationalisation in pulp, paper and packaging.

In light of the effervescent prices being forked out by private equity players of late, the sum of the Amcor parts is probably worth closer to $8-$9 a share.

KKR has just stumped up 18.6 times EV/EBIT for the Brambles assets and only just fended off rivals who were looking to pay similar amounts. The sharks are circling but most don't have a mandate for hostile bids.

Were Hart to put up for sale the parts of Amcor which he didn't want, there would be buyers aplenty. The EV/sales ratio of the Brambles assets was 2.1 times, compared with EV/sales on Amcor of only .85 times. A majestic break-up/turnaround proposition in other words.

Even in a poor year like this one, Amcor spits out $1 billion in cash flow and raiders such as Hart take a three-to-four-year view. If a deal doesn't happen, it won't be because Hart has not had a good look at it.