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RPC - Apollo make 782p offer

Nicholas Hyett | 23 January 2019 | A A A
RPC - Apollo make 782p offer

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US private equity group Apollo Asset Management, has made a final bid for RPC of 782p per share. RPC shareholders will also be entitled to the 8.1p dividend due to be paid on 25 January.

The deal values RPC at £3.3bn - a 15.6% premium to the offer price the day before a potential deal became public.

The RPC board has recommended the offer, which is still subject to approval by RPC shareholders and regulators.

The shares rose 4.9% in early trading to 770p.

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Our view

It's taken a while, but Apollo has finally made a firm bid for RPC - one of the worlds' largest manufacturers of plastic packaging.

The offer is some way below what analysts had suggested was plausible, meaning it's not impossible for a rival bidder to emerge. Another packaging group would probably be the leading candidate -thanks to the potential for cost savings, and a deal that could be part funded by the issue of new shares.

However, with plastic packaging far from popular and with the global economy looking rocky, it might be asking a bit much to expect a rival to fork out the best part of £4bn to keep RPC out of private equity hands.

It's a potentially disappointing result for investors - a 15.6% premium is hardly over generous and the shares have traded higher in the last 12 months. But with board backing and minimal regulatory concerns, we'd expect the deal to go through.

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Half Year Results - 28 November 2018

The Packaging business saw revenues jump 7% to £1.6bn, driven by particularly good results in the Personal Care and Healthcare markets. Divisional profits rose 3% to £175.6m, as a delay in passing through higher polymer prices and changes in sales mix dented margins.

The non-packaging business saw revenue rise 9% at constant currency to £272m, with underlying operating profits up 5% to £38.7m. With the recently acquired ESE business performing notably well.

Free cash flow fell 14% to £142.9m, as increased investment, higher borrowing costs and a small working capital outflow all impacted results. As a result net debt increased 4% to £1.2bn, equivalent to two times EBITDA (earnings before interest, tax, depreciation and amortisation).

During the half RPC sold the Letica Foodservice business for $95m, realising a profit of £19.2m, as it looks to dispose of non-core businesses that generate £ 209m in revenue. Acquisitions in the period include UK plastic recycler PLASgran, polythene film manufacturer Nordfolien and South African packager Spec group.

The group completed its £ 100m share buyback during the half.

Find out more about RPC shares including how to invest

The Author holds shares in RPC.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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