Berry Global mulls hijacking RPC's Apollo deal

US plastics giant Berry Global may undo the five months of works that led to Apollo making an offer for RPC Group last week.

Wall Street-listed Berry said on Thursday that is has requested due diligence information from RPC as it was "considering a possible offer in cash".

Last Wednesday, having been in talks since last autumn, US private equity group Apollo finally made a "final" offer to buy FTSE 250-listed RPC at 782p per share in cash, valuing the UK plastics manufacturer at £3.3m.

Apollo, which formerly owned Berry before its initial public offer in 2012, had specifically described the offer for RPC as “final and will not be increased”.

Berry, a Fortune 500 company with revenues of $7.9bn last year, pointed out that its announcement does not amount to a firm intention to make an offer. It does not face a put-up-or-shut-up deadline from the UK Takeover Panel.

Berry, a major producer of non-woven rigid and flexible packaging products to consumer and industrial end markets, has speeded its growth through acquisitions in recent years, buying Avintiv for $2.45bn in 2015 and Clopay for $475m in November 2017. As of September last year, net debt stood at roughly $5.5bn, 3.9 times EBITDA of $1.38bn.

RPC shares were up almost 4% to 796.2p on Thursday morning.

Analysts at Olivetree noted that as Apollo had said its offer was "final" and had not carved out circumstances under which the final is not binding, "we understand there is now no ability for them to respond to any better offer from Berry" unless the Takeover Panel can be persuaded that these are “wholly exceptional circumstances”, which was seen as "unlikely".

"All in all, this looks a smart move from a strategic trumping its old PE owner at the last minute," Olivetree said, adding that "questions will come about how much due diligence is needed here, given that Apollo took four months – but a strategic acquirer should be able to extract meaningful synergies and trump the 782p nicely".

The analysts suggested that, at first glance, there would not be any insurmountable competition issues if Berry took over RPC.

With Apollo's recommended offer valuing RPC on March 2019 P/E and EV/EBITDA multiples of 10.7x and 7.3x, Numis analysts considered this to be low relative to international peer group valuations.

"Given the scope for synergies, an offer from an industry participant such as Berry, at a premium to current valuation could be justified, offering scope for an enhanced offer for shareholders," Numis said.

Nicholas Hyett at Hargreaves Lansdown agreed that the current offer from Apollo "is lower than we had expected, and probably disappointed many investors", which "left the door open to a rival bidder".

He said an industry buyer like Berry "would be best placed to make a higher number stack up", with the potential for operating synergies a key consideration in packaging M&A.

"With RPC shares now trading above Apollo’s ‘final’ offer price, it looks like could yet be some life in the RPC bidding war.”