Consumer packaging firm Rexam Plc (REXMY.PK, REX.L) on Tuesday announced the proposed sale of its Personal Care business for $709 million in cash.
The business is being sold in two parts. The Cosmetics, Toiletries and Household care products business or CTH and the High Barrier Food packaging business or HBF will be sold to two different buyers.
An affiliate of Sun Capital Partners Inc, a private equity firm, has made a binding offer for CTH for $459 million in cash. A subsidiary of Silgan Holdings Inc. (SLGN), a US-based supplier of packaging for consumer goods products, has agreed to acquire HBF for $250 million in cash.
The deal for HBF is expected to be completed in the third quarter, while the CTH transaction is anticipated to close in the fourth quarter.
Following completion, Rexam plans to return around 370 million pounds to shareholders. This is expected to be effected by way of a redeemable B share scheme together with a share consolidation.
The sale of CTH is expected to result in an impairment charge of around 200 million pounds at the half year. This will be broadly offset in the second half by a gain on the sale of HBF, associated foreign exchange gains and tax credits.
The Personal Care business employs around 7,000 people in Europe, the US and Asia. In 2011, the business had sales of 502 million pounds and underlying operating profit of 38 million pounds before central overheads.
As at December 31, 2011, it had gross assets of 650 million pounds and liabilities of 112 million pounds.
As a result of the sale, Rexam will carry out a restructuring program to remove residual overheads. This, together with certain separation costs, will give rise to an exceptional charge of some 40 million pounds in 2012, of which 25 million pounds will be cash costs.
Ongoing, there will be 7 million pounds of annual retained fixed costs, which will be absorbed by the Beverage Cans and Healthcare businesses.
Silgan said separately that it has entered into a definitive purchase agreement to purchase Rexam's plastic thermoformed food business for $250 million. The business has anticipated sales of around $100 million in 2012, it added.
Tony Allott, CEO of Silgan, said, "As a leading global supplier of shelf-stable food packaging through our metal food can and vacuum closure businesses, Silgan is excited to broaden its offerings to this growing market. Additionally, we believe Silgan's global footprint and market presence will provide this business with enhanced growth opportunities."
The deal is expected to be neutral to Silgan's earnings in 2012, primarily due to the initial write-up of inventory required for accounting purposes. It is estimated to be modestly accretive to earnings in 2013, based on current growth expectations. Silgan expects to fund the purchase price from cash on hand.
REX.L is currently up 0.9 percent at 427.50 pence.
SLGN closed at $42.96 on Monday, compared to the previous close of $42.69, on 164,800 shares.
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