Investors in the ASX-listed Pro-Pac Packaging (PPG) seem happy that management, led by former Australian Post chair, Ahmed Fahour, and legendary corporate wheeler and dealer, Gary Weiss seem to be betting the company in an attempt to double its size via a $177.5 million merger deal with flexible packager Integrated Packaging Group (IPG).
The deal was slipped out on Monday, and the shares were up to 43 cents yesterday, continuing a strong surge from August 31 when the closed at 34 cents. That 26% jump tells us that some in the market knew a big deal was on the way. The shares are up from 38 cent on Monday when the deal was made public.
Integrated Packaging Group is the third-biggest flexible packaging manufacturing business in Australia, which is owned by private equity firm Advent Partners. Pro-Pac had been in a trading halt since September 7.
Mr Fahour said on Monday the acquisition of IPG represented a "significant milestone" in the push to become the pre-eminent flexible and industrial packaging manufacturer and distributor in Australia.
“The acquisition of IPG represents a significant milestone in the realization of Pro-Pac’s vision to become the preeminent flexible and industrial packaging manufacturer and distributor in Australia,” said Fahour. “The opportunity to combine two very complementary businesses will deliver significant long-term value to Pro-Pac shareholders.”
The combined business will have annual sales of more than $450 million.
The merged entity will have customers including Coca-Cola Amatil, Unilever, Blackmores, Arnott’s, Coles, Aldi and BlueScope Steel. The enlarged group is aiming to benefit from the continuing shift in the broader packaging industry towards flexible plastics and stretch film to wrap items, with crates and cardboard boxes losing out.
The merger will be funded through a combination of $60 million Pro-Pac shares issued to the vendors, a $54.8 million fully underwritten equity raising at 34 cents a share and $70 million from a new ANZ Bank debt facility, the company told the ASX in its announcement this week.
Pro-Pac has distribution facilities in Sydney, Melbourne, Brisbane, Perth and Adelaide as well as six manufacturing sites, providing flexible and rigid packaging solutions.
Integrated Packaging Group operates five manufacturing facilities across Australia and New Zealand, providing a wide range of stretch plastic film used to wrap consumer goods, building products and agricultural products.
The new entity will operate 22 distribution warehouses and manufacturing facilities in Australasia.
Pro-Pac CEO Grant Harrod (a former CEO of Hooker real estate), who will head the merged group, says the combination of Pro-Pac and IPG provides “many exciting opportunities” in the growing Australian flexibles packaging market.
“Pro-Pac’s expanded capacity to manufacture and distribute high quality products will delight our customer base and provide us with a one-stop-shop offering. Pro-Pac will be a world class manufacturer without geographic constraints as we increase our offerings in key areas such as food service and agriculture film.”
The deal is conditional on Pro-Pac shareholder approval, the completion of the $54.8 million raising and conditions related to the debt facility.
Pro-Pac last month reported a 5% fall in 2016-17 revenue to $229 million, with profit after tax sliding 28% to $5.02 million. A full year dividend of 2 cents a share was paid.
