Berry Plastics Group (BERY) to Acquire AEP Industries (AEPI) for $765M
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Berry Plastics Group, Inc. (NYSE: BERY) and AEP Industries (NASDAQ: AEPI) have entered into a definitive merger agreement under which Berry will acquire all of the outstanding shares of AEP in a cash and stock transaction. Aggregate consideration will be $765 million, including AEP’s net debt. Each AEP shareholder will elect to receive either $110 in cash or 2.5011 shares of Berry common stock per AEP share in the transaction, subject to an overall 50/50 proration to ensure that 50% of the total outstanding AEP shares are exchanged for the cash consideration. Upon closing, AEP shareholders will own approximately 5 percent of Berry on a fully diluted basis. Based on Berry’s closing stock price on August 23, 2016, the date the exchange ratio was set, the blended value of the merger consideration represented $110 per AEP share. Based on yesterday’s closing price of Berry’s stock, the blended value of the merger consideration represented $109.12 per AEP share.
AEP is a leading manufacturer of flexible plastic packaging films in North America. AEP manufactures and markets a diverse line of flexible plastic packaging products for consumer, industrial, and agricultural applications. Headquartered in Montvale, New Jersey, AEP operates 14 manufacturing facilities in the United States and Canada and has approximately 2,600 employees. For the four quarters ended April 2016, AEP generated net sales of $1.1 billion, net income of $39 million, and adjusted EBITDA of $103 million.
“We respect and admire the impressive company Brendan Barba has built over the last 40 years and look forward to welcoming AEP employees into Berry’s organization,” said Jon Rich, Chairman and CEO of Berry Plastics. “AEP, together with Berry’s Engineered Materials Division, creates an impressive packaging film producer serving the North American market. This unique combination offers the opportunity for significant value creation for Berry and AEP shareholders alike, as we realize procurement and operating cost savings across the two organizations.”
J. Brendan Barba, AEP’s Chairman and CEO, commented, “We are excited to announce this compelling transaction with Berry, which delivers substantial value to our shareholders, while providing the opportunity to participate in the upside of the combination. We believe Berry is the right partner to expand our product portfolio to deliver high quality packaging films to even more customers around the world. Berry shares our commitment to teamwork and success, and we are confident our valued employees will benefit from the opportunities that come from being part of a larger company. We look forward to working with Berry to plan for a seamless integration for our customers and employees and to begin the next chapter in the company’s history."
Select Benefits of the Transaction
Highly complementary fit. Together we will be able to optimize complementary production capacities, reduce material and conversion costs, and better serve customers from an expanded North American footprint with a portfolio of products that is one of the most comprehensive in the industry.
Significant, clearly identifiable cost synergies. Berry expects to realize cost synergies of $50 million or more annually, in line with previous Berry acquisitions of a similar nature. Berry also expects to realize these cost savings through procurement initiatives, operational improvements, sharing of best practices, improved asset utilization, and logistics optimization across the combined plant network.
Attractive transaction economics. The transaction is expected to be accretive to Berry’s adjusted net income and adjusted free cash flow by more than 10 percent, after expected synergies. On a pro forma basis, Berry’s four quarters ended June 2016 adjusted free cash flow would increase by approximately $85 million to $560 million. The transaction will be deleveraging to Berry’s balance sheet after synergies.
Approvals, Closing, and Funding Considerations
The transaction is expected to be completed in the December 2016 quarter, subject to the approval of AEP shareholders and customary closing conditions, including applicable regulatory approvals. Certain of AEP’s executive officers and directors, who in aggregate, beneficially own 21.5 percent of AEP’s common stock outstanding, have agreed to vote in favor of the proposed transaction. Berry intends to fund the cash component of the acquisition with existing cash and a new term loan, and has committed financing in place.
Conference Call and Webcast
Berry will host a conference call and webcast today, August 25, 2016, at 10 a.m. ET to provide more information on this announcement. The telephone number to access the conference call is (866) 244-4530 (domestic), or (703) 639-1173 (international), conference ID 1675892. We expect the call to last approximately one hour. Interested parties are invited to listen to a live webcast and view the accompanying slides by visiting the Company’s Investor page at www.berryplastics.com. A replay of the conference call can also be accessed on the Investor page of the website beginning August 25, 2016, at 1 p.m. Eastern Time, to September 1, 2016, by calling (888) 266-2081 (domestic), or (703) 925-2533 (international), access code 1675892.
Citigroup is acting as exclusive financial advisor to Berry, and Bryan Cave is serving as its legal counsel. BofA Merrill Lynch is acting as exclusive financial advisor to AEP, and Skadden, Arps, Slate, Meagher & Flom and Honigman Miller Schwartz and Cohn are serving as its legal counsel.
|Four Quarters Ended|
|June 2016||April 2016|
|Pro forma adjustments (1)||(98||)||-|
|Depreciation and amortization||(477||)||(30||)|
|Other non-cash charges||(43||)||6|
|Business optimization and other expenses (2)||(30||)||-|
|Restructuring and impairment||(31||)||-|
|Other income, net||22||-|
|Interest expense, net||(261||)||(18||)|
|Income tax expense||(87||)||(22||)|
|Cash flow from operating activities||812||62|
|Net additions to property, plant, and equipment||(280||)||(10||)|
|Payments of tax receivable agreement||(57||)||-|
|Synergies, net of tax (3)||-||33|
|Adjusted free cash flow||$||475||$||85|
Pro forma adjustments include Operating EBITDA and unrealized cost savings from Berry’s Avintiv, Inc. acquisition at the beginning of fiscal year 2016.
Includes business optimization and integration expenses.
Includes $50 million of expected cost synergies, net of tax.
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