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Graeme Hart trims global packaging empire with US$615m asset sale

Wednesday 16th October 2019

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Billionaire Graeme Hart's packaging empire just got a little smaller after Reynolds Group Holdings sold some of its North American, Costa Rican and Japanese units to investment manager Cerberus Capital Management for US$615 million. 

Reynolds Group has signed an agreement to sell its Closure Systems International units to Cerberus, with the deal expected to be wrapped up either later this year or early 2020. Reynolds Group will hang on to the Closure Sytems businesses in Europe, the Middle East, Egypt and South America, it said in a filing to the US Securities and Exchange Commission. 

Closure Systems is the smallest unit of Reynolds Group, contributing US$397 million of the packaging company's US$5.12 billion of revenue in the six months ended June 30, and US$64 million of its US$926 million of adjusted earnings. The division makes plastic and aluminium beverage caps for bottled drinks. 

Hart bought the business in 2008 for US$1.08 billion as part of a larger acquisition of Alcoa's packaging and consumer divisions. He poured the assets into the Reynolds Group entity in late 2009 in the early stages of building the packaging group. 

He began building the packaging empire in 2006 in the protracted $3.3 billion Carter Holt Harvey takeover. He went on to buy International Paper's beverage packing unit for US$500 million and Swiss company SIG for 1.69 billion euro the following year. Alcoa's packaging business was added in 2008 for US$2.7 billion.

Hart then ramped up the expansion in 2010, spending US$6.5 billion on the leveraged buyout of Pactiv and then US$4.5 billion buying Graham Packaging and US$395 million on Canada's Dopaco in 2011. 

The deals were largely funded through debt, with Hart taking advantage of the slump in global interest rates by selling junk bonds to create the world's second-biggest food and drink packaging investor behind Sweden’s Tetra Laval. Annual revenue peaked at US$13.97 billion in 2013, a year when Reynolds Group's total borrowings were at US$17.94 billion. That's been whittled down to US$11 billion.

Reynolds Group sold SIG in 2015 for 3.6 billion euros and in 2017 it sold the Closure and Graham businesses in Asia for US$99 million. 

Last month, Reynolds Group said its second-largest division - consumer products - had confidentially submitted a draft initial public offering registration to the US SEC. Consumer products generated adjusted earnings of US$294 million in the six months through June on revenue of US$1.46 billion. 

"The number of shares to be offered and the price range for the proposed offering have not yet been determined. The initial public offering is expected to commence after the SEC completes its review process, subject to market and other conditions. There is no assurance that the initial public offering will be completed," it said.

The asset sales come as Reynolds Group faces a major debt maturity, with US$3.14 billion due to be repaid in 2020. Analysts questioned management at the June-quarter briefing about whether the company would re-enter the bond market to refinance, to which chief financial officer Allen Hugli said they were still working through their options. 

Carter Holt Harvey - owned separately by Hart's Rank Group - sold its pulp and paper businesses to Oji Holdings for $1.04 billion in 2014. It toyed with the idea of listing the trans-Tasman timber processing and building supplies businesses the following year before shelving those plans. 


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