07.02.2013

Graphic Packaging's expansion into Europe

US-based Graphic Packaging has acquired two companies to boost its position in the European market recently. The recent past has been strategically busy for Graphic Packaging.

First, we saw its £81m acquisition of UK-based Contego Carton's food and consumer carton business, and then another announcement that it is to acquire A&R Carton's beer and beverage packaging business in Europe for Euro 19 million, and will assume approximately Euro 7 million in other net liabilities. Both deals are subject to closing requirements and expected to complete late this month. According to the company the two takeovers are expected to generate $16m-$18m of synergies over the next two years and create a $500m combined business. With its acquisition of Contego Cartons, owned by Platinum Equity the move enables Graphic Packaging to gain an important foothold in the European food and consumer product folding carton market. The deal will be instrumental in allowing Graphic Packaging to grow its operating footprint, expand into new markets - providing opportunities for growth.

Graphic Packaging's president and chief executive officer David Scheible explains: "Contego operates throughout Western Europe with state of the art facilities in the UK and the Netherlands. Combining Graphic's current European business focused in the beverage markets with Contego's strong market share position in the European food and consumer products markets will allow us to broaden our customer base and enhance our competitive positioning. He adds: "There are solid synergies in this combination and we believe the Contego Cartons acquisition is an important step in strengthening our competitive positioning in Europe."

Under the terms of the transaction, Graphic Packaging will pay approximately £71 million in cash and assume approximately £10 million in other net liabilities in an all cash transaction to be funded with existing cash and debt under the company's current revolving line of credit. Contego Cartons operates three folding carton facilities that convert approximately 150,000 tons of paperboard annually into folding cartons for the food and consumer product industries. Extending customer reach Graphic Packaging struck a second deal in a move to allow it to continue to widen its European portfolio with its announcement of its acquisition of A&R Cartons beer and beverage packaging business in Europe. Overall, the two takeovers are expected to generate $16m-$18m of synergies over the next two years and the combination of Graphic Packaging, Contego and A&R will create a $500m combined business, according to Graphic Packaging.

"The acquisition of A&R Carton's beer and beverage packaging business enhances our position in the European beverage packaging market and enables us to extend our customer reach in the region," says Scheible. Scheible adds: "A&R has a solid reputation as an innovative beverage packaging supplier and the combination allows us to better serve our global beverage customers with a broader base of new products and services. He explains: "Similar to our strategy in the US, we are committed to growing our European business around food and beverage end markets and optimizing our supply chain footprint around our customers' needs. Both acquisitions are key for giving Graphic Packaging a platform to further integrate its SUS paperboard.

Moorgate Capital's Nicholas Mockett, who advised on the Contego disposal, says: "Like Graphic Packaging, Contego Cartons serves the food industry and also the spirits industry, and has an impressive list of FMCG clients. Consumers may be handling its high quality products throughout the day from their corn flakes in the morning, to a sandwich at lunch, to a dram of single malt after supper. By acquiring Contego Cartons, Graphic Packaging will be able to extend its capabilities to serve existing and new customers on both sides of the Atlantic. Mockett concludes: "This second deal shows that Graphic Packaging is serious about Europe. A&R Carton beverage business mirrors a key north American market for Graphic Packaging." 


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