Big business down under: O-I Glass to sell ANZ unit in AUD$947 million splash

16 Jul 2020 --- Owens-Illinois (O-I) Glass has entered into a definitive agreement to sell its Australia and New Zealand (ANZ) business unit to Visy Industries (Visy), one of the world’s largest privately-owned packaging and resource recovery companies, for approximately AUD$947 million (US$663 million). The deal, which is expected to be completed by the end of July, is one of the biggest manufacturing acquisitions by an Australian-owned business in Australian business history. Headquartered in Melbourne, the business generated sales of approximately AUD$754 million (US$529 million) and EBITDA of approximately AUD$124 million (US$87 million) in 2019.

Post-acquisition, Visy would employ a reported 7200 people in “well paying” manufacturing jobs. “And, importantly, we will bring Visy’s sustainability culture to O-I, aiming to increase recycled content of glass bottles from 1/3 to 2/3,” highlights Anthony Pratt, the owner of Visy.

ANZ’s largest glass bottle manufacturer
O-I ANZ is the largest manufacturer of glass bottles and containers in Australia and New Zealand, with five manufacturing facilities located in Adelaide, Brisbane, Melbourne, Sydney and Auckland and a recycled glass processing plant in Brisbane.

“The sale of our ANZ operations is consistent with our strategy to properly align our business with the interests of our global customer base, improve financial flexibility and maximize shareholder value. O-I will continue to develop its leading market positions across Europe and the Americas as well as the company’s interests in Asia,” explains Andres Lopez, O-I CEO.Post-acquisition, Visy aims to increase the recycled content in O-I glass bottles from 1/3 to 2/3.

“The sale of ANZ follows an in-depth strategic review of our global business portfolio and operating structure, which is now substantially complete following this transaction. We received a full and fair price for ANZ, and this sale represents a significant milestone in our business transformation as we optimize our structure and prioritize debt reduction,” adds Lopez.

Building on solid business
After evaluating alternatives for the ANZ business, the company determined the best option was to sell the operation to a buyer who could “build on the solid business O-I has developed and bring decades of experience and expertise in closed-loop packaging and recycling solutions, aligned to customer and industry needs.”

“O-I’s ANZ business is known for providing the highest quality glass containers that enhance its customers’ brands. Following a robust sales process, we believe Visy is the best fit for our ANZ business, our customers and our employees. Visy is a well-established leader in providing high quality, innovative and closed-loop packaging solutions that has operated in Australia for more than 70 years,” affirms Lopez.

O-I and Visy have agreed that the sale of the O-I ANZ business unit will be completed in two separate transactions. O-I has entered into a sale-leaseback agreement with Charter Hall for certain properties valued at approximately AUD$214 million (US$150 million) as well as an agreement to sell the O-I ANZ business to Visy for approximately AUD$733 million (US$514 million).

The proceeds on disposal are expected to exceed the net carrying amount of the relevant assets and liabilities. The sale to Visy is subject to customary closing conditions. Both transactions have already received the proper regulatory approvals and closing is expected by August 31, 2020. Based on recent currency exchange rates, total gross proceeds represent approximately US$652 million and the company currently estimates final net proceeds will approximate US$620 million which will be used to reduce debt.

Navigating COVID-19 impacts
O-I’s Q2 2020 performance ended on a positive note after the company endured the brunt of the COVID-19 pandemic in April and May. As markets began to reopen, O-I’s June sales volumes were down approximately 3 percent compared to June of last year. June trends represented a significant improvement from the 18 percent decline in daily shipment levels for April and May, which was previously disclosed.

Overall, Q2 total sales volumes were down approximately 15 percent from the prior year. Operating performance was “very good” as the company’s turnaround initiatives continued to progress well, including significant efforts to control costs to partially mitigate the impact of COVID-19.

Based on the company’s preliminary view, O-I expects Q2 2020 adjusted earnings will be about breakeven. Reflecting O-I’s focus on cash and capital management, cash flows were solidly positive despite Q2 typically being a seasonal use of cash for the business. As a result, O-I’s total liquidity improved over Q2 and compared favorably to Q1 levels.

Edited by Joshua Poole