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

Monday 22nd November 2010

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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.

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