Orora announces sale of North American packaging solutions business (OPS) for A$1.775 billion

Orora Limited (“Orora”) is pleased to announce that it has entered into a binding agreement to sell Orora Packaging Solutions (“OPS”) to Veritiv Corporation (“Veritiv”), an investee company of Clayton, Dubilier & Rice, LLC (“CD&R”) for an enterprise value of A$1.775 billion1 (US$1.2 billion) on a cash and debt-free basis (“Transaction”) 2 . Veritiv’s offer fully values OPS and implies approximately 9.9x FY24A cash EBITDA3, a premium to Orora’s trading multiple and relevant comparable transactions. The Transaction is expected to result in net cash proceeds of approximately A$1.687 billion after tax4, transaction costs and purchase price adjustments5.

Strategic Rationale

As announced at the company’s FY24 results, a strategic review of OPS was undertaken with the objective of unlocking value for shareholders. The sale of OPS to Veritiv concludes a robust process spanning many months, and:

  • transforms Orora into a focused beverage packaging business, with market-leading positions and a defensive growth profile across beverage substrates and end-markets; and
  • leaves Orora with a strong balance sheet, providing flexibility to pursue value accretive organic growth opportunities, including additional Cans expansion projects.

Orora intends to bring forward A$130 million of capital investment to further expand its Cans capacity in Rocklea, Queensland. The Rocklea expansion, in combination with recent and ongoing projects, will increase Cans capacity by more than 30%.

Capital Management

Upon completion of the Transaction, Orora’s priorities will be to reduce debt and invest in an organic Cans capacity expansion in Rocklea, Queensland. Orora’s intention is to distribute surplus proceeds from the Transaction to shareholders over time in a tax efficient manner to deliver a balance sheet consistent with a global beverage packaging business. The form and timing of shareholder distributions will be communicated in due course. Orora is committed to maintaining an investment grade credit profile while supporting its organic growth ambitions and is currently undertaking a review of its capital allocation framework.

Key Terms and Conditions

The Transaction is subject to customary conditions of a transaction of this nature, including obtaining all necessary regulatory approvals from applicable governmental antitrust authorities. Subject to the satisfaction of all conditions precedent, completion is expected to occur late calendar year 2024.

The agreement contains certain termination triggers that entitle Orora to a termination fee. This includes a payment of US$62.5 million by Veritiv to Orora if Veritiv fails to satisfy conditions relating to antitrust clearance (including as a result of such clearance not being obtained within 12 months of the date of the agreement). It also includes a payment of US$75 million by Veritiv to Orora where all conditions precedent to the Transaction have been satisfied, but Veritiv fails to complete the Transaction (including as a result of failing to finance the purchase price).

It is expected that Orora will provide certain transitional services for a limited period after completion, noting that OPS is operated on a largely stand-alone basis, with the business managed independently from Head Office. Orora expects its corporate cost base to improve both on completion and then after fulfilling its transitional commitments.

Orora’s Managing Director & CEO, Brian Lowe said: “Today’s announcement marks a new era for Orora as well as the OPS business as it transitions to Veritiv ownership. Veritiv’s interest in acquiring OPS provided us with an opportunity to realise an attractive valuation for shareholders and accelerate our strategy of becoming a specialty value-added beverage packaging player. This leaves Orora with a strong balance sheet, allowing the company to grow our beverage packaging businesses, including further investment in high returning projects such as the expansion of our Rocklea cans facility in Queensland. The sale is the culmination of a robust process and months of disciplined focus from our team to deliver a compelling outcome for Orora’s shareholders. We are extremely proud of the way the OPS business has grown and the value it has delivered whilst being part of the Orora Group. Veritiv’s offer is an exciting opportunity for the OPS team to join an industry leader in the North American packaging distribution market, with differentiated capabilities.”

 

 

1. AUD/USD of 0.6759.
2. Veritiv has provided debt financing commitments in support of its ability to fund the purchase price and otherwise also intends to make an issue of high-yield bond to finance any of, or in lieu of, any portion of the committed debt financing.
3. Cash EBITDA as reported by Orora is equal to underlying EBITDA less lease repayments less non-cash items.">
4. The company has engaged external advisors and has undertaken an extensive level of due diligence in relation to the divestment of the OPS business. This diligence and external advice supports the expected tax outcomes associated with the divestment. In particular, the company is satisfied that no material capital gain is expected to arise on the divestment of the shares in OPS.
5. Net proceeds and gain on sale will be finalised upon completion of the Transaction.