Silgan Holdings Inc. (SLGN) has signed an agreement to acquire the plastic thermoformed food business of Rexam Plc. The transaction is valued at $250 million.
The plastic thermoformed food business offers thermoformed packaging solutions such as retortable bowls and barrier trays to companies dealing in packaged food and ready-meals worldwide. It caters principally to the growing shelf-stable food packaging market.
The business is expected to generate sales of roughly $100 million in 2012. Silgan expects the deal to be neutral to its 2012 earnings and add modestly to its 2013 results. The deal is scheduled to close in third-quarter 2012.
With this acquisition, Silgan will be able to expand its global footprint in the growing food packaging market. Thus, the companies existing primarily on wide product offerings will become strengthened and diversified. Further, the technology involved being cost effective, it will meet the exact requirements of the shelf-stable food market at low costs.
Through acquisitions and organic growth, Silgan has increased its overall share in the U.S. metal food container market to more than 50%.
Silgan’s historical growth has primarily been driven by acquisitions. However, the company’s inability to identify suitable targets at attractive valuations could impede its growth.
Moreover, Silgan’s debt-to-capitalization ratio is a concern. Its debt-to-capitalization ratio went up to 73.4% as of March 31, 2012, from 67.7% as of December 31, 2011, and 71.1% as of March 31, 2011. Its strategy to look for acquisitions will further aggravate the debt position.
Silgan is a leading manufacturer of consumer goods packaging products operating 80 manufacturing facilities in North and South America, Europe and Asia. In North America, it is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products.
The company also leads in providing metals worldwide, along with composite and plastic vacuum closures for food and beverage products. Silgan competes with Ball Corporation (BLL) and Crown Holding Inc. (CCK).
Silgan retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.Read the Full Research Report on SLGN
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