Ball Corp to Buy Aerocan - Analyst Blog

Ball Corporation (BLL) announced the acquisition of Aerocan, a European manufacturer of aluminum aerosol cans and bottles, for approximately 221 million euros ($292.1 million) from Barclays Private Equity, including assumption of debt and other liabilities. The company expects the after-tax returns from the acquired business to exceed Ball's return requirements and to broaden its metal packaging product line.

Aerocan is the largest supplier of aluminum aerosol cans and bottles as well as aluminum slugs (raw material in the production of cans) in Europe. The company caters to diverse sectors like personal care, pharmaceutical, health, beverage and food industries. It operates three aerosol can manufacturing plants across Europe – in the Czech Republic, France and United Kingdom. It also owns a 51% interest in a joint venture aluminum slug plant in France.

The acquisition is expected to close during the first quarter of 2011, pursuant to customary closing conditions. Once closed, the acquired business will fit into Ball Corporation's Metal Packaging Growth Platform. The buy will not only broaden Ball's presence in a growth market but offer additional opportunities with new and existing customers.

The current acquisition is similar to Ball Corporation's purchase of Austria-based Neuman Aluminum, a global manufacturer of high-quality aluminum slugs. The Neuman Aluminum acquisition enhanced Ball Corporation's metal forming technology and its packaging platform with expectations of being accretive in its first year of operation.

Following the acquisition, Neuman Aluminum was integrated into Ball Corporation's metal food and household products packaging segment. The segment manufactures metal container products used primarily in food packaging at operations in the U.S. and Canada.

Ball Corporation reported strong third quarter results with EPS of $1.40, up 16% from $1.21 during the prior-year quarter, but below the Zacks Consensus Estimate of $1.43. The Metal Beverage Packaging, Europe segment contributed 22% to Ball Corporation's third-quarter revenues.

Segment sales decreased 7% year over year to $442.3 million, consequently reducing the operating profit by 8% to $63.8 million. The segment witnessed stringent cost controls, balanced supply and demand and improved volumes, which were offset by a 10% decline in currency translation.

Cash and cash equivalents for Ball Corporation amounted to $168.7 million as of September 26, 2010, compared with $418.1 million as of September 27, 2009. Cash provided from operations saw a whopping increase to $371.4 million in third quarter 2010 from a meager $6.1 million in the prior-year quarter.

With the generation of huge cash flows year over year, the company now expects to generate $500 million in cash flow for full-year 2010. Ball Corporation intends to aggressively deploy its free cash toward acquisitions.

This Aerocan deal will strengthen Ball Corporation's exposure to the European can market and also boost its international sales. During the third quarter, Ball Corporation sold its long under-performing Plastic Packaging segment. We appreciate this move given the segment's weak volume outlook, and its weak 9% contribution to Ball Corporation's total revenue. We believe this will help Ball Corporation to lift its earnings. 

In the third quarter, the company disclosed its plans to install the second production line in North America to produce Alumi-Tek bottles. The company also announced the consolidation of its salmon can production in the beginning of fiscal 2011, which is expected to bring $8 million cash benefits to the company.

During the quarter, the company also received contracts from NASA to build the first Joint Polar Satellite System (JPSS-1) and from DigitalGlobe to build a WorldView-3, the next generation commercial remote-sensing satellite. The company is well positioned to capitalize on these big contracts. We wait for these initiatives to bear fruit. The company is currently allotted a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Broomfield, Colorado-based Ball Corporation is a manufacturer of metal and plastic packaging, primarily for beverages and foods. It also supplies aerospace and other technologies and services to government and commercial customers. Ball Corporation competes with Alcoa Inc. (AA) and Rexam plc (REXMY).

 
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