Transcontinental to buy Coveris Americas packaging business for US$1.32 billion

Montreal – Transcontinental Inc. is taking a big leap in its strategic shift towards flexible packaging with the US$1.32 billion purchase of Coveris Americas that will make it North America’s seventh-largest packaging companies.

The deal announced Monday after a lengthy auction process complements and bolsters Transcontinental’s product offering particularly in dairy, pet food and consumer products and adds agriculture, beverage and protein, said Francois Olivier, chief executive officer of TC Transcontinental.

“We will diversify our packaging capabilities and product offerings, which will enable us to increase our share-of-wallet with our existing customers,” he said during a conference call.

Olivier said its customer base will broaden and include some large, market-leading customers.

He said that the cash deal, worth C$1.72 billion, will build on the two companies’ combined strengths.

Transcontinental estimated it can achieve US$20 million of cost-savings over a 24-month period, including half in the first year.

As of the end of 2017, Chicago-based Coveris Americas had 21 production facilities worldwide and employed more than 3,100 employees, mostly in the Americas. Transcontinental has eight packaging facilities, including one announced last month.

Coveris generated US$966 million in revenue last year and US$128 million in adjusted earnings before taxes and other expenses (EBITDA).

“This transaction crystallizes our strategic shift toward flexible packaging and solidifies our commitment to profitable growth,”Isabelle Marcoux, chair of Transcontinental Inc.’s board, said in a statement.

“We are convinced that this transformational acquisition will be a driver in the creation of long-term value for all of our stakeholders.”

The Coveris deal is subject to applicable anti-trust approvals and is expected to be completed in the third quarter of TC Transcontinental’s 2018 financial year.

Drew McReynolds of RBC Dominion Securities says the deal moves the needle on Transcontinental’s packaging exposure.

“We believe this transaction is entirely consistent with the company’s transformation from printing to packaging, as well as the desire to consummate a larger acquisition,”he wrote in a report.

The Montreal-based company is buying the flexible packaging business from Coveris Holdings SA, which says it will use the proceeds to pay some of its debts.

With the transaction, 48 per cent of the combined company’s C$3.3 billion in revenues in 2017 and 37 per cent of its $564 million in adjusted EBITDA would have been from packaging.

That’s up from 15 per cent of revenues and 11 per cent of adjusted EBITDA for Transcontinental’s packaging operations last year.

Printing would have accounted for 45 per cent of pro-forma revenues and 59 per cent of profits while media would have accounted for seven per cent of revenues and four per cent of EBITDA.

Olivier said the company will take a breather from more acquisitions and buying back its own shares while it integrates the operations and reduces its debt load by 2020.

He sees Transcontinental growing Coveris’ business, which had been hurt by the challenges of spending US$140 million of capital spending on new equipment over three years. Transcontinental had spend $35 million itself.

“We think we’re buying this asset at the right time and with the combined teams…we’re going to have a stronger story in the marketplace and I think we could put the Coveris Americas assets back onto the growth rate,”Olivier told analysts.

Coveris Holdings is a multinational manufacturing company operating in several industry segments. It will continue to have manufacturing plants in 14 countries and more than 8,000 employees worldwide.