Mondi, the South Africa-based paper company, is to buy 93.4 per cent of the outstanding share capital of the German packaging business Nordenia International in a deal worth €638m.
The company has agreed to pay Oaktree Capital Management and other shareholders €240m in cash for Nordenia’s shares, as well as taking on €398m in debt. The cash portion of the deal will be funded through a new €250m banking facility.
The deal will help the paper group bolster its exposure to the comparatively buoyant field of consumer packaging at a time when the global paper industry is plagued by chronic overcapacity and faltering demand.
In 2011, sales to the consumer packaging sector accounted for about 5 per cent of Mondi’s €5.7bn revenues. Once the acquisition of Nordenia is complete, the sector will provide close to 13 per cent of the group’s revenues.
David Hathorn, Mondi’s chief executive, said that the increased exposure to consumer packaging would bring both long and short-term benefits.
“In the long term, consumer packaging should be capable of growing at about 2 per cent a year in mature economies and 5 per cent a year in emerging economies, especially as disposable income per capita increases and households shrink in size,” he said.
“We’re not buying Nordenia for the short term but the fast-moving consumer goods sector also tends to be pretty resilient and it should provide some downside protection if the economy takes a turn for the worse.”
Mr Hathorn added that he expected the acquisition would enable the combined companies to save €15m per year by 2014 through a mixture of plant optimisation, centralised purchasing and job cuts.
The deal gives Nordenia an implied enterprise value of €655m. or 6.6 times the company’s earnings before interest, tax, depreciation and amortisation, which came in at €99m in 2011.
Myles Allsop an analyst at UBS, Mondi’s broker, said that this represented good value: “The financial metrics of the deal look solid and management has a good record in delivering value-enhancing M&A.”
The transaction, which is due to be completed in the fourth quarter of 2012 and is subject to approval by competition authorities, will increase Mondi’s net debt to 1.7 times ebitda.
Moody’s, the credit rating agency, on Wednesday affirmed Mondi’s issuer rating of Baa3, but downgraded its outlook from “positive” to “stable”.
Shares in Mondi fell 0.72 per cent to 555p in London, valuing equity at £2.7bn.