Apollo to Pay $4 Billion for Ketchup-to-Lotions Packager RPC

(Bloomberg) -- Apollo Global Management agreed to buy British packaging maker RPC Group Plc for 3.32 billion pounds ($4.3 billion), wading into a sector that’s fallen out of favor as a backlash builds against plastic waste.

Shareholders of the container supplier for Kraft Heinz Co. sauces and Nivea beauty products will receive 782 pence a share in cash, RPC said in a statement Wednesday. That’s 16 percent higher than its closing price on Sept. 7, the day prior to the offer period.

RPC shares rose as much as 5.5 percent, the most in four months, to reach 774 pence.

In acquiring RPC, Apollo will be looking to replicate its investment in U.S.-based Berry Plastics, a packaging maker that went on to make 14 acquisitions. The industry has seen a wave of consolidation -- $34 billion worth of deals in the past 12 months alone -- as companies compete for global clients and seek economies of scale. Yet RPC was hampered by concerns of some investors about over-borrowing, according to Chairman Jamie Pike.

Pound Financing

Apollo extended talks five times as it sought better terms and arranged financing -- highlighting reduced access to sterling-denominated loans caused by Brexit risks, people familiar with the matter said on Tuesday. The buyout group is funding the bulk of the transaction in euros and dollars, with some sterling loans that were more costly.

Apollo was quick to respond when RPC executives, at an annual general meeting in July, bemoaned how the company was undervalued. Bain Capital also picked up the signal, but walked away from talks last year. Apollo’s bid values RPC at 7.2 times expected earnings for 2019, a “sizable discount to peer valuations,” according to Alexander Mees, an analyst at JP Morgan.

The company’s board drew criticism from Aviva Investors, one of RPC’s top 15 shareholders, for selling out so low.

“The exit valuation clearly underestimates future growth prospects that will now accrue to the buyer and the RPC management team,” said David Cumming, chief investment officer for equities at Aviva. “This protracted bid process has not delivered fair value to RPC’s shareholders.”

Apollo to Pay $4 Billion for Ketchup-to-Lotions Packager RPC

The offer requires acceptance from 75 percent of shareholders to go through, so it’s technically possible some will hold out for a higher bid. Apollo called its offer a final proposal.

“It took a while, but Apollo has finally agreed to bid,” said Alexander Mees, an analyst at JP Morgan. “The absence of any other interest means we think it’s unlikely, though clearly not impossible, that others will appear now.”

Apollo has broad experience in the plastics industry. Its prior investment in plastics-maker LyondellBasell Industries is considered a textbook model for a start-to-finish private equity transaction.

Portfolio Review

RPC grew quickly through acquisitions, although its share price came under some pressure last year amid mounting concerns over the accumulation of plastic waste and its outlook for earnings.

Under Chief Executive Officer Pim Vervaat, the company expanded in China and the U.S., moving toward more complex containers with spouts and other features, and using more recycled plastic. While it doesn’t produce single-use plastic straws that have been held up as contributing to ocean waste, RPC was drawn into a wider debate over plastic-use versus metal, cardboard and glass.

Apollo said it plans to invest in more sustainable packaging. The private equity group will take up to 12 months to review RPC’s portfolio, identify savings and weed out any businesses that should be sold. The former CEO for Berry Plastics will be drafted in as a non-executive chairman, according to the statement.

RPC was advised by Rothschild, Credit Suisse and Evercore. Barclays and Citigroup acted as lead advisers to Apollo.

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