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Berry Global Acquires RPC Group, Revises Business Structure

Zacks Equity Research

Berry Global Group, Inc. BERY, yesterday, announced that it has successfully completed the acquisition of U.K.-based RPC Group Plc. The transaction value was approximately $6.5 billion. Notably, the company had expressed its interest for the acquisition this March.

Concurrently, the company has announced revision in its business structure, enabling it to offer better services to customers and enhance shareholders’ value.

Notably, the company’s share price increased roughly 2.3% yesterday, closing the trading session at $53.81.

RPC Group specializes in providing recycled solutions and plastic packaging. Its products are mainly used by customers both in the non-packaging and packaging markets. The company operates in 33 countries and had roughly 25,000 employees. Revenues totaled $4.8 billion for the year ended Sep 30, 2018, while adjusted earnings before interest, tax, depreciation and amortization for the same period was $768 million.

Details of Buyout

Notably, Berry Global paid approximately $4.3 billion in cash for purchasing the equities of RPC Group, while the rest $2.2 billion was paid toward net debt and funding for transaction costs. The transaction was financed through funds raised from the offering of $1.25 billion of 4.875% senior notes (secured) due to expire in 2026, $500 million of 5.625% of senior notes (secured) due to expire in 2026, $4.25 billion of term loan and €1.075 billion of term loan.

This acquisition is likely to enhance Berry Global’s growth opportunities by creating a leader in the plastic and recycled packaging industry. The combined entity will operate across 290 locations globally, especially in Australia, Europe, South and North America, Asia, and Africa. Employee strength will be roughly 48,000 and revenues will be approximately $13 billion. Also, the buyout will generated annual cost synergies of $150 million.

With the completion of RPC Global buyout, Berry Global has revised its business segments from the earlier three segments (Engineered Materials; Health, Hygiene & Specialties; and Consumer Packaging) to four segments — Health, Hygiene, and Specialties; Consumer Packaging – International; Engineered Materials; and Consumer Packaging – North America.

Strengthening Portfolio Through Buyouts

Acquisition is one of the favored growth options for Berry Global. Clopay Plastic Products Company, Inc. was added to the portfolio in February 2018, while Laddawn, Inc. was bought in August 2018. In the second quarter of fiscal 2019 (ended Mar 30, 2019), acquired assets added roughly 3.9% to sales.

Zacks Rank & Key Picks

With a market capitalization of nearly $6.9 billion, Berry Global currently carries a Zacks Rank #4 (Sell). Its financial performance in second-quarter fiscal 2019 was lackluster, with earnings lagging estimates by 14.3%. Escalating debts, forex woes, costs and operating expenses, and acquisition-related integration risks are concerning. We believe the company’s acquisitive nature will help boost its growth opportunities.

In the past 60 days, earnings estimates for the company have been lowered, indicating bearish sentiment. The Zacks Consensus Estimate for earnings is pegged at $3.54 for fiscal 2019 (ending September 2019) and $3.82 for fiscal 2020 (ending September 2020), suggesting a decline of 5.6% and 4.3% from the respective 60-day-ago figures.

Berry Global Group, Inc. Price and Consensus

Berry Global Group, Inc. Price and Consensus

Berry Global Group, Inc. price-consensus-chart | Berry Global Group, Inc. Quote

Further, the company’s share price has declined 1.9% in the past three months against 1% growth recorded by the industry it belongs to.

Some better-ranked stocks in the industry are Aptargroup, Inc. ATR, UFP Technologies, Inc. UFPT and Graphic Packaging Holding Company GPK. While Aptargroup sports a Zacks Rank #1 (Strong Buy), both UFP Technologies and Graphic Packaging carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for the current year improved for Aptargroup and UFP Technologies, and remained unchanged for Graphic Packaging Holding. Further, AptarGroup, UFP Technologies and Graphic Packaging Holding had a positive earnings surprise of 8.27%, 9.14% and 3.93%, respectively, in the last reported quarter.

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