Paying off your debts
Macro shot of financial concept
Consolidation is an ever ongoing process in virtually all types of businesses globally. Due to the very international character of the packaging market as a consequence of its customer structure, the big brand owners, and the can making business have shown in the last few decades that the merger and acquisition activity rate has increased at a spectacular rate.
Various drivers lead to merger and acquisitions in our industry. Of course, financial considerations in the end play the dominant role. If managed well, a merger will lead to considerable savings in manufacturing and other costs. The bigger buying power after a merger should enable to better control the prices of the raw materials, aluminium and steel.
Moreover, a wider international spread of can supply is often a requirement for the global brand owners.
The pace of mergers in our business has increased tremendously over the last 25 years. Countless well-established companies like Metal Box, Carnaud, Züchner, Continental Can Europe, Ferembal, Cébal, Peter May, US Can, Saturnus, Vogel & Noot, Boxal, and many more in the US were swallowed up by bigger companies. The last 10 years has seen a further consolidation of the leading international can makers.
In 2010, Ardagh purchased Impress for €1.5 billion, Crown took over Spanish Mivisa in 2014, and then notably the takeover of Rexam (then number one worldwide in beverage cans) by Ball in 2016.
As a result, Ardagh bought the remaining beverage can plants that Ball was not allowed to take over by the anti-trust authorities for €3 billion and now the recent breaking news that Ardagh will combine its Food & Speciality Metal Packaging business with Exal Corporation, producer of aluminium containers, to form Trivium Packaging.
The main fit between the two companies lies in the aerosol can market, in which Ardagh is prominent in steel and aluminium aerosol cans and Exal in aluminium aerosol cans. Ardagh as a group urgently needs the €2.2 billion that the parent company of Exal, the Ontario Teachers’ Pension Plan Board pays in the deal. By the end of June Ardagh’s debt was €7.2 billion, the result of a number of acquisitions, not only in its metal can business, but also in its glass container business. So this €2.2 billion is very welcome, if not necessary.
However, the result of this is that Ardagh will own only 43% of Trivium Packaging. Remarkable, as the Ardagh share in Trivium’s sales of €2.4 billion is around €2.1bn and Ardagh’s contribution in earnings will be €315 million out of €416m in total earnings.
A second thought of mine is that Ardagh wants to say goodbye to this part of its can portfolio anyway, as it represents a real commodity market and is subject to competition of other packaging types, resulting in a stable, virtually no-growth market. I can imagine Ardagh wants to really focus on the worldwide beverage can market, in which the yearly growth in the global market is at least 3-4% with a perfect starting position as infinitely recyclable package in comparison with its main rivals plastics and carton.
Ball is doing the same, judging by its recent takeover of Rexam. Crown does not make a secret of its enthusiasm about the beverage can market and invests heavily in it just like the other global player CanPack. Several other smaller and more local beverage can producers on all continents also want to take advantage of the bright perspectives for the beverage can and also invest heavily.
Ardagh’s chairman and chief executive Paul Coulson, already one of Ireland’s richest men, seems to have concluded another good deal for both Ardagh and himself…
Evert van de Weg is editorial consultant for CanTech International