Silgan Holdings Inc.
(
SLGN
) has completed the acquisition of the plastic thermoformed food
business of Rexam PLC. The value of the transaction, including post
closing adjustments, was $248.1 million.
The new business unit, producing barrier and non-barrier bowls
and trays for the shelf-stable food markets, will operate as Silgan
Plastic Food Containers. It will be incorporated within the plastic
container segment of Silgan.
Silgan used cash on hand to buy the assets. It is expected that
the plastic thermoformed food business will be accretive to its
earnings in 2013 but neutral in 2012. Silgan anticipates that the
business would generate revenues of nearly $100 million in
2012.
Silgan inked the deal to buy assets from Rexam in July this year
with a view to expanding in the growing food packaging market. With
this acquisition, Silgan strengthened and diversified its product
offering, meeting the demands of a wider client base.
The technology involved being cost effective, meets the exact
requirements of the shelf-stable food market at low costs.
Therefore, it is expected that the products of the new business
unit will be widely accepted by the existing customers as well as
potential new customers of the company.
Silgan has grown primarily through acquisitions since its
inception. The company has increased its overall share in the U.S.
metal food container market to more than 50% either through
acquisitions or organic growth.
However, Silgan's inability to identify suitable targets at
attractive valuations could impede its growth. Moreover, its
debt-to-capitalization ratio is a concern. The
debt-to-capitalization ratio went up to 73% in second-quarter 2012
from 70% a year ago. Its strategy to look for acquisitions will
further aggravate the debt position.
In addition, the soft demand conditions in Europe are expected
to weigh on volumes and pricing moving ahead. Silgan also faces
stiff competition from companies like
Ball Corporation
(
BLL
) and
Crown Holdings Inc.
(
CCK
).
Silgan retains a short-term Zacks #3 Rank (Hold). We have a
long-term Neutral recommendation on the stock.
BALL CORP (BLL): Free Stock Analysis Report
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SILGAN HOLDINGS (SLGN): Free Stock Analysis
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