Bloomberg news reported overnight that ASX-listed global packaging giant Amcor Limited (ASX: AMC) was reportedly exploring the idea of launching a takeover offer for US-listed Bemis Company, Inc.
It's unclear if an approach has been made, but a takeover bid would represent at least a US$4.2 billion commitment for Amcor, which has an A$18 billion market capitalisation and earned US$702 million in profit last year.
Bemis is a packaging manufacturer just like Amcor, with interests in flexible and rigid packaging for food, beverages, and sterile instruments, among others. It also has a graphic design division that allows companies to design their own packaging.
So what?
An acquisition might make sense for Amcor, which – as an industry leader already – is struggling to find further ways to grow. Sales revenues fell 2% in the most recent financial year, although they were up 4.4% on a 'continuing operations' basis.
However, there's no way Amcor could make an acquisition of this size without a capital raising or taking on a huge increase in debt. Amcor currently has approximately US$1.4 billion in undrawn debt facilities available, suggesting it would require another ~$3 billion of funding to come from somewhere.
Bemis company also carries a significant amount of debt, with around US$800 million according to the December 2016 annual report. Any company post-takeover would need to have total debt within levels that are acceptable to its bankers.
A $4.2 billion takeover would be a huge bite to swallow for Amcor. While Bemis seems like a complementary business, it's hard to say without more detail whether a takeover could be a winner for Amcor shareholders. Still, it's just a rumour at this stage, and we'll have more coverage if Amcor updates the market.
