Rio Tinto Sells Alcan Packaging Unit for $1.2 Billion to Bemis

By Jesse Riseborough

July 6 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, sold part of its Alcan packaging unit to Bemis Co. for $1.2 billion to cut debt.

Bemis agreed to pay $1 billion in cash and $200 million in stock for the Food Americas business of Alcan Packaging, London- based Rio said today in a statement. The acquisition will boost earnings from next year, Bemis, the largest producer of flexible plastic packaging in the Americas, said in a statement.

Rio has raised $18.9 billion selling assets and stock this year to cut debt that ballooned to $38.7 billion at the end of 2008 after buying Alcan Inc. The company’s remaining packaging assets could fetch more than $2 billion based on the valuations used in the sale to Bemis, according to Citigroup Inc.

“The continued divestment of non-core assets is positive for Rio as it frees up capital to reduce debt,” Citigroup’s Sydney-based analyst Clarke Wilkins said today in a note to clients. A repaired balance sheet from the recent rights offer “also allows a stronger bargaining position in the divestment of remaining assets to avoid fire sale prices,” he said.

Rio fell 55 pence, or 2.7 percent, to 1,971 pence by 9:23 a.m. in London trading, paring the year’s gain to 60 percent. It earlier dropped 2.2 percent to A$48.50 by the close on the Australian stock exchange.

Bemis said in April it was in talks to buy part of the Alcan packaging business. The Neenah, Wisconsin-based company has 17 percent of the U.S. flexible-packaging market and Alcan has 14 percent, Royal Bank of Scotland Group Plc said in April.

‘Significant Step’

Food Americas, which has about 4,600 workers at 23 locations in the U.S., Canada, Mexico, Brazil, Argentina and New Zealand, had sales of $1.5 billion in 2008, Rio said.

The sale “is the first significant step in reducing the asset portfolio acquired with Alcan,” Rio’s Chief Financial Officer Guy Elliott said in the statement. The company has also raised $2.5 billion this year from selling iron ore and potash assets in Latin America, a U.S. coal mine and a share in a Chinese aluminum smelter.

Rio, still seeking buyers for the remainder of the Alcan packaging business and its engineering unit, said it may write down the value of some of these assets when it announces half- year earnings. In May it dropped the sale of its borates unit after failing to get what it called an “acceptable” price.

“It’s good that in this sort of market that they’ve actually been able to dispose of it,” said Peter Chilton, who manages the equivalent of about $356 million at Constellation Capital Management Ltd. in Sydney.

Cost Savings

Chicago-based Food Americas had adjusted earnings before interest, tax, depreciation and amortization of about $166 million in the year ended Dec. 31, Bemis said in the statement. The transaction will involve about $100 million in tax benefits and $65 million in annual cost cuts, it said.

The sale price “looks reasonable,” at 6.7 times Ebitda adjusted for tax savings, Wilkins said. The division accounts for about 23 percent of the sales of Alcan packaging, he said.

Bemis on April 28 said it took a one-off charge of $9.1 million in the March quarter, mostly associated with due diligence fees on the potential acquisition of a portion of Rio’s packaging unit.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net