London - Rexam, the world's largest maker of beverage cans, will acquire the plastics business of Owens-Illinois for $1.83 billion (R13.3 billion), adding about 50 percent to its sales in the plastics industry.
The unit had sales of $772 million last year from 18 plants in the US, Mexico, Brazil, Hungary, Singapore and Malaysia.
Rexam shares decreased as the London-based company said that the transaction would be paid for by sales of shares and bonds.
The company is paying about 15 times the profit last year from the Owens-Illinois plastics business.
The transaction will make Rexam the largest US supplier of pill bottles and other healthcare containers for companies including Pfizer, and the biggest in bottle tops and other closures for buyers such as Coca-Cola and Nestlé.
"A deal like this over the last couple of years has been priced around 13.5 times profit," said Kevin Lapwood, an analyst at Seymour Pierce in London.
Shares of Rexam fell as much as £0.195 (R2.79) to £4.92 and traded 3.3 percent lower at £494 in midday trading in London yesterday.
That takes their decline this year to 5.8 percent, valuing the company at £2.89 billion.
By expanding in plastics after selling its glass division in March, Rexam may bolster its return on sales.
This "will transform our plastic packaging business and is consistent with our strategy to expand our positions in growth markets", chief executive Leslie van de Walle said yesterday.
Shares of Owens-Illinois climbed $0.19, or 0.6 percent, on Friday, giving it a market value of $5.1 billion.
Ohio-based Owens-Illinois in January said it might sell the plastic-packaging unit, where profit last year fell 10 percent to $114.5 million.
The cost of the purchase was estimated by Seymour Pierce at between $1.2 billion and $1.8 billion.
Wachovia Capital Markets expected a price closer to $1.5 billion.
Rexam said it would sell stock equivalent to about 9.9 percent of its share capital to finance the purchase.
It would also offer subordinated bonds in a sale managed by Barclays Capital and Citigroup. Rexam's debt is rated Baa3 at Moody's Investors Service, one step higher than high-risk, or junk, status.
Standard & Poor's rates it one level higher at BBB.
"The acquisition will be an excellent fit," producing synergies of about $40 million a year by 2010, Rexam said yesterday.
Credit Suisse Group advised Rexam on the purchase of the Owens-Illinois unit. - Bloomberg