US drinks can maker Ball Corp is to buy British rival Rexam Plc in a £4.43 billion deal, creating an industry giant, after Rexam agreed to the offer yesterday (February 19th).
Rexam said that the combined business would be more attractive to the world’s leading drinks companies, who could strike a single packaging deal to cover all markets, rather than enter separate negotiations with different companies to cover all regions.
Ball will also assume about £1 billion worth of Rexam’s debt. It is expected that by merging, the world's two largest beverage companies would be able to better manage capital spending and costs as aluminium premiums rise, according to Reuters. It would also help them reduce warehousing and transport costs.
However, markets reacted rather negatively to the announcement, with shares of Rexam falling significantly below the indicated price of 628 pence per share yesterday. Ball shares fell about two per cent.
While analysts said the offer price was fair, they worried about antitrust concerns. "As there are so many regulatory approvals required for such a merger to go through, I think the market is discounting the probability of it happening," said Thomas Picherit of research firm AlphaValue, quoted by Reuters.
A combined company would control about 61 per cent of the market for drinks cans in North America, according to analysts quoted by the Financial Times. In Europe, Rexam and Ball would have a combined market share of about 69 per cent, and about 74 per cent in Brazil.
Rexam was founded as a paper company in London in 1881 by William Bowater. Ball, with headquarters in Broomfield, Colorado, is a 135-year-old company famous for its glass canning jars.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.