FIRB Approves Sale of Orora’s Australasian Fibre Business
Packing solutions firms, Orora Limited has announced today that Nippon Paper Industries Co, has received the green light from the Foreign Investment Review Board (FIRB) to proceed with the acquisition of Orora’s Australasian Fibre Business. The FIRB approval was a necessary condition for both firms to be a step closer to the completion of the acquisition. Specifically, Orora is fortunate to have identified the right buyer who has agreed to pick up the business at the right price.
The offer is said to be at a premium relative to other comparable transactions and is made in the best interest of stakeholders. More notably, the Japanese firm paid 11.5 times the division’s earnings before interest, tax, depreciation and amortisation while Orora currently trades at about nine times the figure. Nippon Paper also has plans to return approximately $1 per share to investors. Meanwhile, there are several companies operating within the industry where the sum of their parts is more valuable than the entire group. For instance, two firms that remain under the watchlist are Fletcher Building and Boral Limited.
More broadly speaking, Orora has come a long way. The firm was spun out of Amcor by Mackenzie seven years ago, diverting its packaging distribution business into a new company. While Orora still has some paper packaging business in the United States, its Australian arm is focused on aluminium cans and glass bottling for the beverage sector. Yet, the separation may be a blessing in disguise. From an investor’s standpoint, the sale of the business also means that Orora will be left with a higher-quality beverage operation, which principally allows it to operate in cans and glass.
This is because the Australasia beverage business posts strong growth as the company’s key beer client, Carlton United Brewery, has been transiting customers to cans from glass. Additionally, there is also a significant growth in non-alcoholic canned beverages. The decision to emphasise on its beverage business was further supported in Orora’s first-half report for the period ending 31 December 2019. The earnings improvement was largely driven by a robust performance in cans with volume growth in craft beer and a greater demand for can formats as a result of the switch.
The $1.7 billion acquisition is not expected to result in the loss of any valuable customer-related or operational synergies. Rather, the sale will result in synergies between both companies, and it is the second-biggest transaction in the industrial space in recent months that involve a Japanese firm. The price tag is also reflective of Nippon’s ability to fully appreciate the Australasian Fibre Business, which comprises the B9 Paper Mill, specialty packaging, cartons and bags.
Even as Orora plans to return approximately $1.2 billion to shareholders through the most efficient capital management initiatives, the sale is likely to increase the exposure to North American earnings risk as the region would constitute 40 per cent of the company’s earnings.
By Caroline Wong
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