Ball Corporation Completes Rexam Acquisition, Shares Rise

Shares of beverage can maker Ball Corporation (NYSE:BLL) gained over 1% yesterday after it closed the long-awaited acquisition of Rexam PLC (OTC:REXMY) for approximately $6.1 billion of cash and equity, along with the assumption of approximately $2.4 billion of net debt. Post-acquisition, Ball Corp. is now the largest manufacturer of beverage cans in the world.

In early 2015, Ball Corporation had confirmed its offer to obtain Rexam. However, the acquisition of Rexam – the London-based metal beverage can maker with 55 plants in more than 20 countries producing cans for The Coca-Cola Company (NYSE:KO) , Pepsico, Inc. (NYSE:PEP) and Anheuser-Busch InBev SA. – was not an easy deal.

After the announcement, Ball Corp. had faced numerous hurdles from its shareholders and regulatory bodies on the concern that the acquisition will impede effective competition in the consumer packaging market.

In order to address these concerns, Ball Corp. submitted commitments to divest some of its assets and agreed to sell twelve plants in Europe and two in Brazil. The company also completed the required sale of the divestment business including eight aluminum-can plants and related assets in the U.S., to Ardagh Group for $3.1 billion. Further, it agreed to shut down Rexam's London headquarters which is expected to close by the end of this year.

Ball Corporation's combined global metal beverage business will operate 75 metal-beverage manufacturing facilities and joint ventures, as well as various support locations, in North and Central America, Europe and Russia, South America, Asia and the Middle East.

The company will now employ around 18,700 people across five continents with pro forma net 2015 sales of approximately $11 billion. Its global headquarters will remain in Broomfield, Colorado, supplying approximately 100 billion innovative, high-quality metal beverage containers.

Ball Corporation expects to immediately begin integration of the new business into its global metal beverage operations. It also expects to gain synergies in excess of $300 million by the end of the third year of combined operations.

The company’s leverage has increased in the range of 4.5 times net debt to comparable EBITDA following the deal-related cash outflows, reflecting the mid-year seasonal peak of borrowings, as well as the impact of the acquisition, synergies and net divestiture proceeds. However, the company expects that execution on synergies and strong free cash flow will allow it to deleverage rapidly with targeted leverage to be in the range of 3.0 times in 2018.

The buyout will create long-term value for Ball Corporation’s shareholders. It also ensures to make the beverage cans economically, environmentally and socially sustainable in the beverage supply chain.

In addition, Ball Corp. will maintain its focus on Drive for 10 vision, EVA philosophy, balance-sheet management, free cash flow generation and capital allocation practices. In line with this, the company initiated a 90-day review of the newly acquired business, including costs, capital, supply logistics and balance-sheet management among others.

This Zacks Rank #3 (Hold) company, will announce second-quarter earnings on August 4, 2016, and will provide an update on its progress at that time.