Packaging Market Weekly Wrap – Graphic and Altivity Merger Approved

The merger between Graphic Packaging and Altivity Packaging has been granted conditional approval by the US Department of Justice.

First proposed in July last year, the merger gained shareholder approval in January.

The department, which valued the deal at $1.75bn, says the combined company must sell two paperboard mills – expected to be Altivity's two coated-recycled paperboard mills.

New Zealand-based Rank has completed its takeover of Alcoa's packaging and consumer businesses.

The US$2.7bn deal was first announced in December last year and gained approval from the European Commission last week.

SHARING THE WEALTH

A report by credit rating firm Fitch Ratings says packaging firms are suffering financially by not passing on increased costs to customers.

Fitch says the price of raw materials increased in 2007 due to a range of factors including increased demand and adverse weather conditions in production areas such as China, Russia and Finland.

"Failure to pass through raw material and transportation cost inflation, together with an inability to generate sufficient mitigating cost efficiencies are the hallmarks of weaker credit quality for highly leverage packaging producers," Fitch analyst Michelle de Angelis says.

Fitch says the volatility in raw material prices has resulted in considerable working capital requirements, which is affecting free cash-flow generation.

A RECORD YEAR

BMO Financial Group's investment and corporate banking division BMO Capital Markets says the packaging merger and acquisition market had a record year in 2007 despite challenging economic condition in the latter part of the year.

The report, 'Mergers & Acquisitions in the Packaging Industry: Annual Deal Review' examines M&A activity by packaging sector, by strategic and financial acquirers, by geography, and by transaction valuations.

Director and head of BMO Capital Markets's packaging practice managing director Doug Lawson says for much of 2007, there existed very favourable conditions for M&A, including a strong economy and favourable credit markets.

"These factors combined with healthy balance sheets, significant availability of private equity capital and a strong rationale for continued consolidation drove the record M&A levels in the packaging sector.

"Deal flow slowed in the latter part of 2007 and is down in the first two months of 2008 versus the prior year, however, there continues to be interest in the sector and a strong rationale for continued consolidation remains."

M&A volume in the sector increased for the fifth consecutive year to 386 deals, representing a 10 percent increase year-over-year from 351 deals in 2006.
Source: packaging-technology