Ardagh in €600m buyout of Rexam glass unit

Paul Coulson's Ardagh Glass will have annual sales of some €1.25 billion after its €660 million buyout of the European glass unit in British group Rexam, a deal which will bring to 22 the number of glass plants it operates in Europe.

The deal will double Ardagh's size and reduce its dependence on the loss-making British market, where escalating energy costs have led to a steep decline in gross margins. It will significantly increase its debts, a factor that led credit rating agency Moody's to put its rating under review for a possible downgrade.

Rexam, which is world's biggest drink can manufacturer, had already sold its British glass operations to Ardagh in 2005.

Ardagh will part-fund the latest transaction with €338 million in debt from a syndicate of institutions led by Anglo Irish Bank. The company has also arranged a €150 million working capital revolving credit facility with the syndicate

The bulk of the remaining consideration will be funded with a €300 million bridging loan from Citigroup. Ardagh said it intends to refinance this facility through an issue of senior notes following completion of the transaction.

The remainder of the consideration will be funded with €40 million from Ardagh's cash resources and a €10 million equity rights issue. Existing Ardagh shareholders will take up the rights on a pro-forma basis, it is understood.

Thus there will be no dilution in the 47 per cent stake held by Yeoman International, the Luxembourg-based holding company that controls Mr Coulson's interests. Mr Coulson separately owns a personal stake of 22 per cent in Ardagh and senior management and staff hold 25 per cent.

Ardagh employs 3,300 people at nine glass plants in Germany, Italy, Poland and Britain. The Rexam deal will add 3,600 staff to the group at 13 plants in Denmark, Germany, the Netherlands, Poland and Sweden.

While the deal is subject to competition approval in Germany and Poland, Mr Coulson indicated in clear terms that Ardagh would be seeking to reduce the cost base of the enlarged organisation.

"The acquisition will provide us with opportunities to achieve greater operating efficiencies and to further develop our customer relationships," he said. "Following the acquisition, Ardagh will double in size and become the number three glass container manufacturer in Europe with approximately 18 per cent of the market."

The Rexam glass business had sales of €642 million in 2006 and €116 million in earnings before interest, tax, depreciation and amortisation (ebitda). "This appears a reasonable price at 5.7 times enterprise value ebitda," said investment bank UBS in a research note.

Projected 2007 results for the Rexam unit suggest a multiple of five times ebitda, it is understood.

Moody's put Ardagh's B3 credit rating under review for a possible downgrade in light of the takeover, stating that the deal would "double Ardagh's expected on balance sheet debt in excess of £400 million (€586.4 million) at year-end 2006".

The ratings agency said its decision reflected the "transformational character" of the deal for Ardagh, increasing its leverage significantly as well as challenging management to integrate an operation of scale. "On the other hand, Moody's notes the strategic rationale and potential benefit of this acquisition."

The deal comes not long after Mr Coulson and Yeoman took a significant profit from the €412 million sale of the Irish Glass Bottle plant to Bernard McNamara, Derek Quinlan and the Dublin Docklands Development Agency.

Mr Coulson owned 3.4 per cent and Yeoman owned 23.19 per cent of South Wharf, the vehicle which received 66 per cent of the proceeds of the Ringsend deal.