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Melbourne-headquartered Orora (ASX: ORA) has struck a deal to sell North American business Orora Packaging Solutions (OPS) for $1.775 billion to US-based Veritiv Corporation, offloading a division that accounts for around 40 per cent of the group's earnings as it looks to refine its focus on beverage packaging.
The news comes almost a year after Orora conducted a $1.345 billion capital raise to help fund the €1.29 billion ($2.16 billion) acquisition of French multinational bottle manufacturer Saverglass - a buyout which last month was described by Orora managing director and chief executive officer Brian Lowe as "one of the most significant milestones in the company’s history".
In Orora's annual results released in mid-August, Lowe revealed discussions were taking place to sell OPS as part of a long-held strategic ambition to focus on beverage containers.
The sale of OPS represents a 9.9x cash EBITDA multiple and is expected to result in net cash proceeds of approximately $1.687 billion after tax , transaction costs and purchase price adjustments.
In FY24 OPS delivered earnings of US$109.5 million ($162.3 million) out of an underlying EBIT of $404 million for the group, which is around double the $80 million in earnings that Saverglass was able to contribute over its first seven months as part of Orora.
The group notes that the sale will give it market-leading positions and a defensive growth profile across beverage substrates and end-markets, as well as a strong balance sheet to pursue growth opportunities, including projects for its capacity to manufacture cans.
Orora has also announced that it plans to bring forward a $130 million capital investment to further expand its capacity to manufacture cans in the Brisbane suburb of Rocklea, where an expansion is set to lift capacity by 30 per cent.
"Today’s announcement marks a new era for Orora as well as the OPS business as it transitions to Veritiv ownership," says Lowe.
"Veritiv’s interest in acquiring OPS provided us with an opportunity to realise an attractive valuation for shareholders and accelerate our strategy of becoming a specialty value-added beverage packaging player.
"This leaves Orora with a strong balance sheet, allowing the company to grow our beverage packaging businesses, including further investment in high returning projects such as the expansion of our Rocklea cans facility in Queensland."
Having previously pointed to improvements in the OPS business that saw its EBIT margins grow to 5.6 per cent despite a soft macroeconomic environment, Lowe highlights the sale is the culmination of a robust process and months of disciplined focus from the team to deliver a "compelling" outcome for shareholders.
"We are extremely proud of the way the OPS business has grown and the value it has delivered whilst being part of the Orora Group," he says.
"Veritiv’s offer is an exciting opportunity for the OPS team to join an industry leader in the North American packaging distribution market, with differentiated capabilities."
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