Glass half full at Ardagh

THEY MAY be on hold for the moment, but Ardagh has not abandoned its intention to go back to the market. The group is due to close a €720 million deal in a few days and next week will publish results for the second quarter of this year.

It has been eyeing a flotation for the last 15 months, and has completed the first formal stages of its application to the US Securities and Exchange Commission (SEC).

The glass and metal container manufacturer plans to launch on the New York market rather than Dublin, where it

was once a mainstay of the Irish Stock Exchange.

Ardagh parted company from the Dublin market in 2003 in a spin-off orchestrated by Paul Coulson, who is now its chairman* and controller of 69 per cent of its shares. He cited the continuing failure of the market to properly value the company as the reason for his move.

At the time, commentators criticised the action as offering little to investors. An offer from the ill-fated Quinn group for some of its manufacturing assets was even seen as a boost for shareholders.

In the end, most investors stayed on board as the company was taken private and it looks like they made the right choice. In 2007, they shared in the €273 million that Ardagh’s spin-off, South Wharf, made from the sale of its old production site in Ringsend, Dublin. Coulson and his vehicle, Yeoman International, received almost 27 per cent of this figure.

In the past five years, they’ve seen the group take a huge step up and establish itself as major player in global food and drink packaging.

It is now heading for €4 billion a year in revenues, is ranked in the top three in most of its geographic and product markets, and at number one in northern Europe.

Its client list includes beverage giant, AB Inbev (brewer of Budweiser), Coca Cola, Heineken, Heinz, John West, L’Oréal, Pernod Ricard and Proctor Gamble.

Two acquisitions helped kickstart this. The first was its purchase of Rexam’s European glass manufacturing business in 2007 for €660 million, a move that doubled Ardagh’s revenues to €1.25 million.

The second followed in September 2010, when it bought Impress Co-operative for €1.7 billion from private equity player, Doughty Hanson, owner of Irish broadcaster, TV3.

Impress made metal containers, and its customers included food companies such as John West and Del Monte, and well-known operators in other sectors, including Crown Paints and household products manufacturer Procter Gamble.

The deal more than doubled Ardagh’s size for the second time – it went from a turnover of €1.25 billion a year to more than €3 billion, and its workforce jumped from 6,500 to in excess of 14,000.

Ardagh paid for Impress with the proceeds of a bond issue, consisting of notes worth €1 billion and $800 million. The following February it raised a further €200 million from capital markets and declared its intention to seek further purchases.

The company was as good as its word, picking up Italian rival, Fi Par, for €125 million in March last year. Fi Par also produced tins and metal containers for the food and aerosol industries, with markets in Italy and Greece.

Two months after that deal, Ardagh announced it was taking the first formal steps towards a flotation on Wall Street, which it hoped would happen later last year. Ultimately, as the worsening European sovereign debt crisis plunged the markets into a period of volatility 12 months ago, the group put the plans on hold.

But there has been no let up on the acquisition front, with the group involved in three deals this year. It began by paying €85 million for Boxal, another metal container manufacturer, this time with operations in France and the Netherlands. The deal brought with it a group of clients that included Coca Cola, Heineken, and three cosmetics groups, Dove, L’Oréal and Nivea.

In March, it paid a reported €170 million for Leone Industries, a family-owned manufacturer in New Jersey in the US, which makes bottles and jars for the food and drinks industries in North and Central America.

And just last month, it announced that it was taking on its second biggest acquisition, Anchor Industries, another US company, for $880 million (€721 million).

The deal is expected to close next week. Tampa, Florida-based Anchor is the third largest glass producer in the US and has revenues of about €660 million.

The deal will boost Ardagh’s glass business by 50 per cent, ties in neatly with the Leone Industries transaction and means the US will generate about 21 per cent of group earnings.

It is understood US regulators are about to approve the deal, which is likely to close on Monday. Once again, Ardagh is paying for it by borrowing. A $920 million bond issue to finance the purchase was eight times oversubscribed, meaning that, in theory, the company could have raised about €6 billion.

Going public is likely to give it even greater flexibility when it comes to raising money, particularly for larger-scale deals, which are generally funded by with a mix of equity and cash.

The exact timing of an initial public offering is still not known. Now that it has passed the first formal hurdle with the SEC, the company is very restricted in what it can say. Ongoing volatility in the markets means Ardagh is likely to hold off for the time being. The speculation is that it is likely to be next year.

What Ardagh will offer investors is a steady business rather than anything dramatic. Its products are basically bottles, jars, drink cans, food tins, aerosol cans, paint containers and a range of similar items.

It’s not the most exciting product list but, with about 60 per cent of revenues from food, it has a strong defensive element. Once the Anchor deal goes through, it will have combined revenues of about €4.2 billion and more than 100 manufacturing facilities in Europe and the US. The group’s approach has been to buy mature businesses and boost cashflow from them by managing costs.

Ardagh originally had an Irish glass manufacturing business and operations in Britain and Europe. In 2002, it closed its Irish manufacturing plant in Ringsend, Dublin, a move preceded by a long dispute with staff there.

The following year it spun off the international business to a new private entity registered in Guernsey. The remaining Irish entity was renamed South Wharf, which ended up in a long legal wrangle with Dublin Port over the rights to sell the old Irish Glass Bottle manufacturing site at Ringsend.

That was ultimately settled, paving the way for the sale of the site to a consortium that included Bernard McNamara, Derek Quinlan and a State body, the Dublin Docklands Development Authority, for €412 million. The price was split roughly 60/40 between South Wharf and Dublin Port.

The Ringsend site is now reckoned to be worth 10 per cent of what was paid, while McNamara’s and Quinlan’s investments are under the control of receivers and Nama.

Ardagh, on the other hand, appears to have thrived and may well return to manufacturing here. Earlier this year, Coulson and the company's chief executive officer *, Niall Wall, said it was considering locating a new plant in the Republic. Since then, it is understood to have held talks with State development agency, Enterprise Ireland, and has looked at possible sites.

A decade on from its shake-up and delisting, it looks like the group is poised to come full circle – back to the markets and back to Ireland.

Smashing performance: How the Ardagh story unfolded

2003:Ardagh delists its international division from the Irish Stock Exchange, leaving behind a property-holding vehicle, South Wharf.

2007:South Wharf nets €273 million from the sale of the Irish Glass Bottle Site at Ringsend.

Ardagh pays €660 million for the glass division of Rexam, doubling its size.

2010:Ardagh pays €1.7 billion for Impress, doubling its size again to a €3 billion company and bringing it into metal containers.

2011:March: Ardagh pays €125 for Italian player, Fi Par.

May:Announces plans to float on the New York market.

August:Puts flotation plans on hold for now.

2012:January: Ardagh pays €85 million for Boxal.

March:Pays €170 million for Leone Industries in US.

July:Company announces that it is buying Anchor Industries in Florida for €721 million, significantly boosting its presence in the US.

* This story was edited on Friday, August 17th, 2012 to correct errors.