Berry Bests Apollo With $4.4 Billion Deal to Form Plastics Giant

(Bloomberg) -- Berry Global Group Inc. agreed to buy RPC Group Plc for 3.34 billion pounds ($4.4 billion) to create one of the world’s largest plastic-packaging companies, derailing a rival takeover plan by Apollo Global Management.

Once a holding of Apollo, Berry boosted the cash part of its proposal to win backing from RPC’S board. Shareholders would get 793 pence a share in cash, Berry said in a statement on Friday, or 11 pence more than Apollo’s offer.

Berry Chief Executive Officer Tom Salmon, already coming off a string of acquisitions, is making the company’s biggest purchase amid a rapidly consolidating market for plastic packaging. Australia’s Amcor Ltd. is awaiting regulatory approvals to combine with U.S. rival Bemis Inc. to become the world’s largest producer, and RPC would make Berry nearly as big with annual sales of $13 billion.

Having won over RPC, Salmon now has to convince his own shareholders about the merits of a debt-fueled purchase in Europe, where the debate over plastic waste is raging the fiercest. Berry’s leverage is hovering around four times earnings. The Evansville, Indiana-based company aims to extract $150 million of cost savings from the RPC combination, giving a boost to earnings growth.

European Expansion

Berry, which supplies packaging to brands including Procter & Gamble Co., Coca-Cola Co., and Starbucks Corp., would gain European customers such as L’Oreal SA and Henkel AG. The company would more than double its facilities to 293 worldwide, while RPC’s focus on Europe would make Berry less reliant on North America.

“The strong strategic fit and reasonable synergy case (3 percent of sales) will ultimately win over investors, given the visible path towards shareholder value creation,” Ghansham Panjabi, an analyst at Baird Equity Research who recommends buying Berry shares, said in a report.

What Bloomberg Intelligence Says

“Berry’s planned purchase of RPC Group for $4.4 billion elevates the company to a global leader in plastic packaging and gives it a major presence in Europe.”

--Joshua Zaret and Evan Lee, analysts
Click here to view the research

Berry rose 1.9 percent to $52.68 at 11:06 a.m. in New York after advancing as much as 4.2 percent for the biggest intraday gain in a month. RPC, based in Northamptonshire, England, fell 1.5 percent to 784 pence in London. The offer would represent a premium of 16 percent as of Sept. 7, the day before Bloomberg News reported that RPC was exploring strategic options.

Plastic Backlash

Berry, which generates 82 percent of revenue from North America, would grow in Europe as regulators there move to ban throwaway plastics such as straws and stirrers by 2021. While RPC doesn’t manufacture those products, the clampdown is spreading to other plastic packaging and consumer goods as companies are being urged to use alternative materials such as glass and cardboard.

Added to that is a consumer backlash that’s spurred companies like Nivea to move to almost 100 percent recycled materials. RPC’s leadership in producing packaging from recycled resins in Europe is one of the drivers of the acquisition, Salmon said on a conference call to discuss the deal.

“We continue to believe that plastic is the most versatile substrate on the planet,” Salmon said on the call. “RPC has taken a leadership approach relative to the circular economy.”

Apollo Stance

Apollo spent five months conducting due diligence on RPC, which has sought to replicate Berry’s acquisition strategy with seven deals of its own in the past two years. Some of Berry’s M&A spree -- 45 acquisitions over three decades -- took place under Apollo’s wing, while publicly traded RPC faced a bigger struggle to convince investors that increasing debt to pay for deals was the right path.

Investors including Royal London Asset Management and Aviva Investors, one of the U.K. group’s top 15 shareholders, had criticized Apollo’s offer as being too low. The private-equity group has stated that its January offer was final. An outside spokesman for Apollo didn’t immediately respond to a request for comment.

Berry faced slowing orders in health and hygiene packaging at the end of last year as declining resin prices led customers to hold off purchasing materials, betting that costs would come down further.

The company expects the purchase to close early in the third quarter, pending approvals from regulators and RPC shareholders.

To contact the reporters on this story: Andrew Noël in London at anoel@bloomberg.net;Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Tony Robinson

©2019 Bloomberg L.P.