Pactiv to be Bought in $6 Billion Deal - Analyst Blog

Pactiv Corp. (PTV) has agreed to be taken over by Reynolds Group Holdings Ltd. for $4.4 billion. Including debt, the deal is valued at $6 billion and is expected to close before the end of 2010. Reynolds Group will pay $33.25 a share, which represents a 39% premium to Pactiv's May 14 closing price, the last trading day before stories of Pactiv's takeover surfaced.

Chicago, Illinois-based Reynolds Group Holdings is a leading global manufacturer and supplier of consumer food and beverage packaging and storage products. Reynolds is a wholly owned subsidiary of New Zealand-based Rank Group Limited.

Rank Group is owned by Graeme Hart, a businessman based in New Zealand and reportedly the richest Australasian, according to the 2009 Forbes list. Since his 2006 purchase of Carter Holt Harvey he has focused his acquisitions on the paper packaging sector. His largest acquisition to date is Alcoa's Packaging & Consumer group for $2.7 billion in 2008, later renamed Reynolds Packaging Group.

The takeover does not come as a surprise. A Wall Street Journal report had divulged that Pactiv Corp. would shortly announce its acquisition by Rank Group indicating that the race to acquire the company may have reached the homestretch. The price of the deal was expected to be in the mid-$30 range per share.

Stories regarding the acquisition of Pactiv surfaced on May 17 with the Wall Street Journal claimed that the company may be bought by private-equity firm Apollo Global Management. The journal reported on May 19 that paper and packaging company Georgia-Pacific Corp. and Rank Group have also joined the bid for Pactiv. The latest entrant was Wichita Kansas-based privately held conglomerate Koch Industries as per a New York Post report on July 23.

The company's shares have shown an upward trend in anticipation since the rumors broke out. Pactiv shares had traded in the mid-$20s prior to the market buzz about the acquisition by Apollo Global. The Apollo Global news triggered an upside of 19% for the stock to reach $28.44. News of more bidders (Georgia-Pacific Corp. and Rank Group) lifted the share price 6.8% to $29.79.

Shares had since traded at an average price of $28.93. Finally, the Koch Industries rumor took Pactiv shares to the above-$30 level of $30.85, an all-time high since the company had last seen the $30 territory on October 15, 2007. On the news that Pactiv might be acquired by Rank Group, its shares closed at $30.92. As the confirmed news emerged, Pactiv shares jumped 5.5% to $32.62 in early trading.

Pactiv's profits had suffered in the first two quarters of 2010 due to lower demand. EPS dropped 34.5% to 38 cents in the first quarter and 8% to 56 cents in the second quarter, compared with the respective year-ago quarters. As of June 30, Pactiv Corp. had cash and cash equivalents of $43 million and total debt of $1.5 billion.

Lake Forest, Illinois-based Pactiv Corporation engages in the manufacture and sale of consumer and foodservice/food packaging products in the United States and internationally. Pactiv operates through two segments: Consumer Products and Food Service/Food Packaging products.

 
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