Packaging giant Amcor Limited (ASX: AMC) has gone into a trading halt this morning as it prepares to announce an all-scrip acquisition at a time when investors are questioning its growth outlook.
The speculation is that Amcor is making a $7 billion plus takeover of its New York Stock Exchange (NYSE) listed peer Bemis Company, Inc. – a move that will lead to the company to list in the US, according to the Australian Financial Review.
What may be more significant, but less obvious to Amcor's shareholders, in my view, is that the company may be laying the groundwork to de-list on the ASX. This won't happen right away, but I think it's an eventuality.
The fact is, it makes far more sense for Amcor to be listed in the US than Australia. The company makes around 85% of its revenue from the Americas, Europe and Middle East markets. The balance comes from Asia and Australia.
Amcor had spun-off its local division into a separate listed company called Orora Ltd (ASX: ORA) in 2013 to focus on its international expansion.
Further, Amcor reports its earnings in US dollars and the acquisition of Bemis will give it a much larger footprint in the US. Bemis is expected to post US$4 billion in sales annually with most of this coming from the US market.
In contrast, Amcor is expected to post revenue of US$9.4 billion for FY18.
The all-stock deal will also favour Amcor's shareholders with the stock trading on a FY19 consensus price-earnings (P/E) multiple of 22 times compared to Bemis at 15 times (before Friday night's share price surge as news of the deal leaked).
Shares in Amcor have lagged the broader market with the stock slipping 6% over the past year, compared to a 9% gain by the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) and a 20% jump by Orora.
It's also worth noting that a reasonably large proportion of its share register is made up of international investors who would welcome an NYSE listing.
The deal didn't come out of the blue. Amcor had approached Bemis about a year ago on a possible merger but the two parties couldn't reach an agreement on the price, according to the AFR.
But a spike in resin cost from the surging oil price (resin being a by-product of petroleum) had squeezed margins across the industry and had made Bemis more eager to be part of a larger global organisation.
While it's not a done deal between Amcor and Bemis just yet, the company joins a wave of merger and acquisition (M&A) activity on the ASX this year.
More recent examples include bathroom equipment group Reece Ltd's (ASX: REH) acquisition of US-based MORSCO Inc, the failed takeover of energy company Santos Ltd (ASX: STO) by US private equity buyer Harbour Energy and the media merger of Nine Entertainment Co Holdings Ltd (ASX: NEC) and Fairfax Media Limited (ASX: FXJ).
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