Amcor fair value rises on Bemis tie-up
Morningstar has increased its fair value estimate for Amcor, saying its acquisition of US rival Bemis will cement its role as a global plastics giant.
Mentioned: Amcor PLC (AMC)
Morningstar has increased its fair value estimate for Amcor, saying its acquisition of US rival Bemis will cement its role as a global plastics giant.
In an updated note, analyst Grant Slade has increased the FVE for narrow-moat Amcor by 10 per cent, taking it from $14 to $15.40 following the announcement of the $17 billion ($23 billion) deal yesterday.
"The deal will further cement Amcor’s position as a global plastics giant," Slade said. "With 70 per cent of Bemis's US$4 billion in annual sales generated in North America, the deal will beef up Amcor's underweight position in the North American flexibles market where it generated US$810 million in sales in fiscal 2017."
The flexible packaging market in the Americas is a growth priority for Amcor
Upon resumption of trade, the Amcor share price was down about 4-5 per cent at the $14.60 level. At 10.45 Sydney time, it was trading at $14.09.
Under the deal announced overnight, the new, merged Amcor will have a primary listing on the New York Stock Exchange, with a secondary listing in Australia.
Amcor manufactures flexible and rigid packaging for food, beverage, healthcare, personal care and other industries. It employs about 35,000 workers across 195 plants in 43 countries worldwide.
The Wisconsin-based Bemis employs about 16,000 people and runs 56 plants globally and is considered a global leader in flexible packaging manufacturing.
The acquisition means Amcor will have a stronger foothold in the US, which is its largest market, as well as access to Bemis' material science expertise.
Slade said the deal would boost Amcor's competitive advantages and benefit from Bemis's "moat-worthy proprietary technology and IP associated with its ranging of meat, cheese and dairy protein packaging into the Amcor portfolio."
Amcor chief executive Ron Delia has described the deal as a great Australian story. "Amcor identified flexible packaging in the Americas as a key growth priority and this transaction delivers a step change in that region," he said in a statement.
Bemis President and CEO William F Austen labelled the deal "transformational".
"We believe this combination, which is an exciting growth story for both companies, will benefit all stakeholders," Mr Austen said in a statement.
The deal comes at a time when consumer demands for environmental sustainability are shaking up the industry.
The combined company has pledged to develop all packaging to be recyclable or reusable by 2025.
"There are an increasing number of opportunities arising for a leading packaging company to capitalise on shifting consumer needs, an evolving customer landscape and the need to provide responsible packaging solutions that protect the environment," Delia said.
"With this transaction, Amcor will have a stronger value proposition with the scale, breadth and resources to unlock value from these opportunities, for the benefit of our shareholders, customers and employees."
Delia said the two companies first began talks in January.
Under the deal, Amcor will issue 5.1 of its shares for each Bemis share, valuing the stock at $US57.75 per share, and Bemis shareholders will end up with 29 per cent of the combined company.
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Lex Hall is content editor, Morningstar Australia
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