Mining Journal > Finance > Rio Tinto sells Alcan unit for US$1.2 billion

Finance

Rio Tinto has sold part of its Alcan packaging unit to Bemis Co for US$1.2 billion to cut debt.

Bemis agreed to pay US$1 billion in cash and US$200 million in stock for the Food Americas business of Alcan Packaging, Rio Tinto said today in a statement. The acquisition will boost earnings from next year, Bemis, the largest producer of flexible plastic packaging in the Americas, said in a statement.

Rio Tinto has raised US$18.9 billion selling assets and stock this year to cut debt that ballooned to US$38.7 billion at the end of 2008 after buying Alcan Inc. The company’s remaining packaging assets could fetch more than US$2 billion based on the valuations used in the sale to Bemis, according to Citigroup Inc.

“The continued divestment of non-core assets is positive for Rio as it frees up capital to reduce debt,” Citigroup’s Sydney-based analyst Clarke Wilkins said today in a note to clients. A repaired balance sheet from the recent rights offer “also allows a stronger bargaining position in the divestment of remaining assets to avoid fire sale prices,” he said.

Food Americas, which has about 4,600 workers at 23 locations in the U.S., Canada, Mexico, Brazil, Argentina and New Zealand, had sales of US$1.5 billion in 2008, Rio Tinto said.

The sale “is the first significant step in reducing the asset portfolio acquired with Alcan,” Rio Tinto’s Chief Financial Officer Guy Elliott said in the statement. The company has also raised US$2.5 billion this year from selling iron ore and potash assets in Latin America, a U.S. coal mine and a share in a Chinese aluminum smelter.

Rio Tinto, still seeking buyers for the remainder of the Alcan packaging business and its engineering unit, said it may write down the value of some of these assets when it announces half-year earnings. In May it dropped the sale of its borates unit after failing to get what it called an “acceptable” price.

“It’s good that in this sort of market that they’ve actually been able to dispose of it,” said Peter Chilton, who manages the equivalent of about US$356 million at Constellation Capital Management Ltd in Sydney.

Chicago-based Food Americas had adjusted earnings before interest, tax, depreciation and amortization of about US$166 million in the year ended Dec 31, Bemis said in the statement.
The transaction will involve about US$100 million in tax benefits and US$65 million in annual cost cuts, it said.

The sale price “looks reasonable,” at 6.7 times Ebitda adjusted for tax savings, Wilkins said. The division accounts for about 23% of the sales of Alcan packaging, he said.

Bemis on April 28 said it took a one-off charge of US$9.1 million in the March quarter, mostly associated with due diligence fees on the potential acquisition of a portion of Rio Tinto’s packaging unit.

July 6 (Bloomberg)