Bemis to acquire Alcan's Food Americas unit from Rio Tinto; financing includes $1 billion of debt

By Jennifer Lanning Drey

Portland, Ore., July 6 - Bemis Co., Inc. has agreed to acquire the Food Americas operations of Alcan Packaging, a business unit of international mining group Rio Tinto plc, for $1.2 billion, according to a Bemis news release.

Financing for the transaction will include a combination of $1.0 billion of debt and $200 million of equity.

Bemis plans to replace a portion of the current $1.0 billion bridge financing with a combination of bonds with differing maturities while keeping some of the current credit agreement through the commercial paper markets, Gene C. Wulf, chief financial officer of Bemis, said during the question-and-answer portion of a conference call held Monday to discuss the transaction.

Bemis will achieve the equity portion of the purchase price either by delivering to Rio Tinto the proceeds of a public equity offering or by providing Bemis stock to Rio Tinto upon closing.

Wulf said Bemis discussed the financing alternatives with Standard & Poor's and Moody's Investors Service and, based on their input, expects to maintain an investment-grade rating.

"Our investment-grade credit rating is very important to Bemis," Wulf said.

Debt pay down

The CFO also said during the call that cash flow generated by the combined company will be focused on debt reduction, and the company believes it can reach its target debt-to-total capital ratio of between 30% and 40% within a few years, he said.

The ratio will be 48% following the transaction.

In addition to a focus on paying down debt, Bemis believes cash flows will also support investment in the business, and the company plans to continue its dividend policy, which has paid dividends since 1922.

"With this acquisition, we expect new opportunities for sales growth through our expanded food and beverage packaging platforms, new opportunities for EBITDA growth through cost synergies and growth on the bottom line through deleveraging our balance sheet," Wulf said.

Next steps

The next steps in the process toward closing the transaction are applying for regulatory approval where required and raising the long-term capital to replace the committed bridge financing, he said.

The company expects the transaction to close by the end of 2009.

Under the transaction, Bemis will acquire 23 Food Americas flexible packaging facilities in the United States, Canada, Mexico, Brazil, Argentina and New Zealand.

Bemis expects over $65 million of annual run-rate pre-tax synergies to be achieved by the end of the second year following the acquisition date.

Chicago-based Alcan Packaging provides specialty packaging for the food, pharmaceutical, beauty and tobacco industries. It is a business unit of Rio Tinto, a mining and exploration company based in Melbourne, Australia, and in London.

Based in Neenah, Wis., Bemis is a supplier of packaging materials used for food, consumer and manufacturing products.

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