Ancora Sends Letter to the Board of Directors of Berry Global (BERY) Regarding Opportunities for Enhanced Value Creation

November 29, 2021 6:31 AM EST

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Ancora Holdings Group LLC today announced that it has sent the below letter to Berry Global Group, Inc.’s (NYSE: BERY) Board of Directors.

***

Dear Members of the Board of Directors:

Ancora Holdings Group LLC (together with its affiliates, "Ancora" or "we") is a shareholder of Berry Global Group, Inc. (“Berry” or the “Company”), with ownership of approximately one percent of the Company’s outstanding shares. We believe Berry has a high-quality portfolio of packaging products and a unique value proposition to offer the global manufacturing sector. We also believe Berry has a capable management team that deserves credit for driving meaningful sales growth and earnings improvements in recent years. However, despite these tailwinds, Berry has been a chronic underperformer that perpetually trades at a significant discount to the broader market, relevant indices and packaging peers.

In our view, it is time for the Board of Directors (the “Board”) to take real action to address the impediments to value creation that have compounded at Berry. We deem Wednesday afternoon’s announcement of $50 million in planned share repurchases to be an insult to investors. Not only is the size of the accelerated share repurchase transaction wholly insufficient, but the Board did not even increase its existing authorization. As total shareholder returns have lagged in recent years, the Board has repeatedly failed to establish an accretive capital allocation policy and seize opportunities to monetize non-core real estate assets. It is now necessary to initiate a comprehensive review of strategic alternatives, including a full sale or go-private transaction.

We have spent significant energy and time analyzing Berry’s operational and financial performance since Tom Salmon became Chief Executive Officer in February 2017. Mr. Salmon has presided over a 113.4% increase in annual revenues, an 83.8% increase in annual EBITDA and, most importantly, a 134.3% increase in diluted earnings per share. Regrettably, these results have been accompanied by a paltry 29.7% share price uptick during his nearly five-year tenure.1 Additionally, we remain concerned by Berry’s acquisition track record and leverage philosophy. Shareholders have historically suffered as the Company, which was previously saddled with immense debt, pursued deals with excessively high leverage ratios, causing its shares to trade at an acute discount. But even now that the Company's leverage ratio is within its target range, its shares still continue to underperform the market. This suggests to us that Berry’s persistent valuation discount is linked to the risk of the Board continuing to allocate capital to acquisitions, rather than simply being the result of the Company’s leverage ratio. A credible capital allocation policy that prioritizes returning cash to shareholders could be one remedy for Berry’s punishing valuation gap.

We believe Ancora is not the only shareholder that feels the Board should commit to reviewing its existing strategy relative to alternatives. In recent months, we have had conversations with a number of fellow shareholders who expressed their own concerns about Berry’s share price stagnation and valuation discount. Certain shareholders, including us, now believe they may be best served by seeing the Company sold to one of the many well-capitalized financial sponsors and strategic buyers in the marketplace. A review of relevant and comparable acquisitions indicates shareholders could receive $100 per share or more in value via a sale. It is unclear whether the current Board has a viable plan for unlocking that type of value on a standalone basis any time soon.

A CLOSER LOOK AT BERRY’S UNDERPERFORMANCE AND TRADING DISCOUNT

We believe Berry’s shareholders have been extremely patient and consistently given the Board the benefit of the doubt in recent years. With that said, the Company has now underperformed across various long-term horizons. Shareholders are unlikely to have more patience in light of the following returns:2

CEO
Tenure

1-Year

3-Year

5-Year

Berry Global Group, Inc.

29.7%

18.8%

31.2%

43.2%

Russell 2000 (TR)

80.9%

32.6%

62.7%

90.0%

S&P 500 (TR)

123.5%

33.1%

84.2%

136.2%

S&P 500 / Containers & Packaging -IND

40.3%

9.0%

44.6%

48.7%

Average - Relevant Indices

81.6%

24.9%

63.8%

91.6%

Median - Relevant Indices

80.9%

32.6%

62.7%

90.0%

Aptargroup, Inc.

87.5%

3.4%

28.3%

88.7%

Amcor PLC

NA

3.9%

NA

NA

Sealed Air Corporation

39.8%

46.0%

85.9%

47.6%

Ball Corporation

169.9%

-1.5%

97.9%

161.4%

Crown Holdings, Inc.

111.8%

16.8%

129.2%

111.0%

Silgan Holdings Inc.

49.5%

24.0%

74.5%

83.8%

Average - Rigid & Flexible Plastic Packaging

91.7%

15.4%

83.2%

98.5%

Median - Rigid & Flexible Plastic Packaging

87.5%

10.4%

85.9%

88.7%

Graphic Packaging Holding Company

79.7%

33.4%

89.0%

76.3%

International Paper Company

16.4%

5.9%

24.3%

27.4%

Packaging Corporation of America

61.7%

5.5%

50.8%

75.4%

Sonoco Products Company

29.1%

9.1%

17.8%

32.2%

WestRock Company

0.8%

11.8%

11.9%

9.0%

Huhtamaki Oyj

27.9%

-11.8%

60.2%

24.6%

Mayr-Melnhof Karton AG

88.6%

25.4%

64.4%

105.6%

Average - Paper Packaging

43.5%

11.3%

45.5%

50.1%

Median - Paper Packaging

29.1%

9.1%

50.8%

32.2%

Shareholders are also being punished by a sizable valuation discount:3

Company Name

Share Price

Market Cap

FCF Yield

ADJ EV / EBITDA LTM

ADJ EV / EBITDA FY 2022

ADJ EV / EBITDA FY 2023

Berry Global Group, Inc.

65.51

8,863.5

12.3%

7.8x

7.5x

7.3x

AptarGroup, Inc.

130.15

8,567.4

2.5%

15.8x

14.2x

13.0x

Amcor plc

11.90

18,349.7

6.2%

11.9x

11.4x

11.0x

Sealed Air Corporation

64.50

9,556.1

6.2%

12.8x

10.6x

10.2x

Ball Corporation

95.70

30,996.7

1.8%

18.6x

15.6x

14.2x

Crown Holdings, Inc.

111.55

14,060.0

3.5%

9.9x

10.4x

9.7x

Silgan Holdings Inc.

42.20

4,659.3

9.3%

10.3x

9.1x

8.8x

Average - Rigid & Flexible Plastic Packaging

14,364.9

4.9%

13.2x

11.9x

11.2x

Median - Rigid & Flexible Plastic Packaging

11,808.1

4.9%

12.3x

11.0x

10.6x

Graphic Packaging Holding Company

20.59

6,323.2

10.3%

10.0x

7.0x

6.7x

International Paper Company

47.58

18,426.0

10.4%

7.7x

7.2x

7.1x

Packaging Corporation of America

133.09

12,552.9

5.4%

9.1x

8.3x

8.3x

Sonoco Products Company

61.11

6,008.7

7.3%

35.8x

9.0x

8.6x

WestRock Company

46.77

12,394.1

11.4%

6.9x

5.5x

5.7x

Huhtamäki Oyj

43.55

4,545.4

4.7%

12.5x

10.2x

9.5x

Mayr-Melnhof Karton AG

202.20

4,043.9

1.8%

13.4x

8.6x

7.9x

Average - Paper Packaging

9,184.9

7.3%

13.6x

8.0x

7.7x

Median - Paper Packaging

6,323.2

7.3%

10.0x

8.3x

7.9x

As a result of underperformance and low valuation multiples, we believe the Board should have been authorizing aggressive share repurchases. The Company is now within its leverage target range of 3.0x-3.9x net debt/EBITDA and currently has a 12.3% free cash flow yield (by far the highest FCF yield among the Company’s peers).

WE URGE THE BOARD TO EXPLORE THE MANY VALUE-ENHANCING OPTIONS IN FRONT OF IT

As noted, we believe the Board needs to promptly commence a review of strategic alternatives. The review should be communicated publicly so that shareholders can see that the Board is taking its fiduciary duties seriously. We believe that a strong Board that is in tune with its shareholders would actively address the concerns of engaged shareholders. Playing hide-the-ball with information on the direction of the Company after a prolonged period of stagnation runs counter to what we believe are sound governance practices maintained by a well-functioning Board.

First and foremost, we believe the Board should consider repurchasing additional shares with Berry’s ample free cash flow and capital on hand. In light of the Company’s strong profitability, it is particularly well-positioned to buy back stock at current levels. Not only would a large and ongoing repurchase program be accretive for Berry, but it would also send a strong message to investors that leadership has confidence in the business going forward. We suggest that the Board immediately announces an expansion of its repurchase authorization to $1 billion.

Another logical step is a sale-leaseback transaction. If Berry is concerned about balance sheet flexibility and having sufficient cash to fund strategic growth, then it should consider funding share repurchases through a sale-leaseback transaction that will generate significant cash. We estimate Berry has up to $2 billion in real estate value currently tied up on its balance sheet, and that a transaction with the right buyer could provide the Company with nearly 20% of its market capitalization in cash. Seizing this opportunity would allow the Board to quickly upsize its $400 million “opportunistic” repurchase authorization to $1 billion or more in size, while still retaining capital for prudent investments.

Lastly, we believe the Board owes it to long-suffering shareholders to evaluate a sale of the Company or a go-private transaction. Ancora, in particular, views this step as an absolute necessity given the public market’s unwillingness to properly value Berry. Rather than taking action to aggressively combat the low valuation multiple, the Board has spent years allowing management to run the Company like a private business with an ultra-long-term investment horizon, translating to a lack of return of capital to shareholders. In light of the aforementioned factors, the Board should hire a qualified investment bank to run a market test. Our own analysis of comparable transactions indicates Berry could fetch a valuation of $100 per share or more via a sale.

While we appreciate management’s willingness to engage with us to date, it has become clear that our feedback and views have not fully penetrated the boardroom. We welcome the opportunity to present our ideas in greater detail to the Board. There are tremendous opportunities to capitalize on, for the benefit of all of Berry’s shareholders and stakeholders. If the Board maintains its insular posture, we will be compelled to requisition a special meeting of shareholders or take other long-term actions to install highly-qualified, independent directors willing to prioritize shareholders’ best interests.

Sincerely,

Frederick D. DiSanto

Jim Chadwick

Chairman and Chief Executive Officer

Co-President

Ancora Holdings Group LLC

Ancora Alternatives LLC



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