In wake of takeover, Hart beats Telecom and Fletcher for sales

Monday 22nd November 2010

Graeme Hart's Reynolds Group is closing the gap on Fonterra's annual revenue after shareholders of Pactiv approved a US$6.5 billion takeover.

Investors in Illinois-based Pactiv approved Hart's leveraged buy-out, which will see the packaging company merge with Reynolds to create a group with pro forma combined revenue of US$9.78 billion (NZ$12.5 billion). Fonterra's annual sales were $16.7 billion.

Hart now presides over an empire with greater sales than Telecom and Fletcher Building combined after almost 99% of Pactiv's shareholders approved the US$33.25 a share offer. Hart is financing the deal through a US$3.2 billion junk bond sale and a further US$2 billion from lenders. Reynolds also took on US$780 million of Pactiv's debt and injected US$710 million of cash and equity.

Reynolds will have some US$11.8 billion of debt when the transaction is complete. Its B+ credit rating was put on negative outlook by Standard & Poor's. Pactiv had an investment grade rating of BBB.

The value in the deal will come as Hart strips an annual US$200 million of costs from the combined entity as duplication in administration and back-office functions is cut, and manufacturing is streamlined for the new company. The company expects to have all of its cost-saving measures in place by 2012, which will cost some US$125 million to implement.

On completing the deal, Reynolds repaid the US$250 million worth of Pactiv notes maturing in 2018. It had earlier put out a notice to holders of the packaging company's 2015 notes after the US$500 million worth of debt was flagged as a new risk factor to the combined business.

Hart began building a packaging empire in 2006 with his NZ$3.3 billion takeover of Carter Holt Harvey, whose forest holdings he subsequently sold.

In 2007, he spent US$2.7 billion on aluminium manufacturer Alcoa's packaging business, which he later renamed Reynolds Group. He later bought International Paper's beverage packaging unit and Swiss company SIG.

BusinessDesk.co.nz

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