Reynolds Group moves again, offers $4.4 billion for Hefty bag maker Pactiv

By Andrew Vanacore, AP
Tuesday, August 17, 2010

Reynolds Group puts up $4.4B for Hefty bag maker

NEW YORK — Reynolds Group, part of the global packaging business owned by New Zealand’s richest man, said Tuesday it will pay about $4.4 billion for Hefty bag maker Pactiv.

Including debt, the acquisition is valued at around $6 billion. It’s the latest and biggest in a string of deals that has built Reynolds parent company Rank Group Ltd. into a worldwide packaging empire under owner Graeme Hart.

Reynolds Group Holdings Ltd., a Chicago-based subsidiary, is offering Pactiv shareholders $33.25 per share in cash. That’s a premium of about 8 percent over Pactiv’s closing share price of $30.92 on Monday. But it’s 39 percent higher than the closing price May 14, the last trading day before reports of a potential deal began to emerge.

Reynolds, which expects to close the acquisition in the fourth quarter, said it will finance the buyout with $5 billion in new debt from affiliates of Credit Suisse, HSBC, and Australia New Zealand Bank.

Hart’s estimated $5.3 billion fortune earned him the No. 144 spot on Forbes magazine’s list of the world’s richest people. He began bulking up Rank Group’s packaging business back in 2007 when it agreed to buy SIG, a Swiss food-packaging company. In 2008, Rank paid $2.7 billion for the food-packaging division of Alcoa Inc., which included Reynolds.

In April, Hart consolidate some of his holdings in the industry, looking to raise $1.75 billion so that Reynolds could buy two other companies that Hart already owned, U.S.-based Evergreen Packaging and a paper mill in the New Zealand city of Whakatane.

Pactiv Corp., based in Lake Forest, Ill., is the biggest addition yet. The company had annual revenue last year of close to $3.4 billion. The bigger of its two main divisions provides packaging materials to food distributors and restaurants. The other sells Hefty trash bags and food containers.

In a regulatory filing, Pactiv said that if it terminates the merger deal it must pay Reynolds a breakup fee of $160 million, and if Reynolds were to walk away from the deal, it would owe Pactiv $250 million. The fees could jump as high as $500 million if either company was found to have willfully breached any part of the companies’ agreement.

Reports that Pactiv was up for sale began surfacing in May. Citing unnamed sources familiar with the negotiations, The Wall Street Journal reported that investment firm Apollo Global Management and then paper and packaging company Georgia-Pacific Corp. had also prepared bids.

Pactiv shares rose $1.66, or 5.4 percent, to close at $32.58, having reached a 52-week high of $32.73 during the session.

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