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RPC - Potential bid from packaging giant

Nicholas Hyett | 31 January 2019 | A A A
RPC - Potential bid from packaging giant

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Packaging giant Berry Global has announced that it's considering a cash offer for RPC, and that it has requested due diligence information from RPC of 782p per share. RPC shareholders will also be entitled to the 8.1p dividend due to be paid on 25 January.

RPC shares rose 3.7% in early trading to 794p.

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Our view

It took months for Apollo to make an offer for RPC, and just a week later the whole bid is up in the air again.

Berry is one of RPC's major rivals, and that actually makes a higher offer price easier to deliver. Unlike Apollo, Berry will be able to achieve cost synergies from merging with RPC, and synergies are the key driver behind consolidation in the plastic packaging space.

Although Berry has said it's interested in making a cash offer, there's also the potential for a bid to be made partly in shares. That would help a potential buyer keep debt down, while also giving RPC shareholders a slice of the benefits.

Of course all of that is speculation. But after a lowball offer from Apollo, shareholders will be pleased to see that others in the industry also think RPC is going cheap. The fact shares are now trading above Apollo's offer price suggests the market hasn't ruled out the possibility that a new deal can be done.

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Apollo Bid - 23 January 2019

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.

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.