The Orora Ltd (ASX: ORA) share price is up 8% after the company announced a large sale of a business segment.
Orora describes itself as a leading manufacturer and distributor of sustainable, innovative packaging solutions for customers globally.
North American sale
The ASX share announced it has entered into a binding agreement to sell Orora Packaging Solutions (OPS) to Veritiv Corporation, which is part of Clayton, Dubilier & Rice (CD&R) for an enterprise value of A$1.775 billion on a cash and debt-free basis.
Orora said the offer fully values OPS and implies a valuation of approximately 9.9x FY24’s cash EBITDA, which is a premium to Orora’s share valuation trading multiple and relevant comparable transactions.
Completing this transaction is expected to result in net cash proceeds of approximately A$1.687 billion after tax, transaction costs and purchase price adjustments.
Why is Orora selling this business?
The company has been reviewing this business for months to unlock the value for shareholders.
This sale will transform Orora into a business focused on beverage packaging, with “market-leading positions and a defensive growth profile across beverage substrates and end-markets”.
It will also strengthen its balance sheet and reduce debt, giving it the flexibility to pursue value-adding organic growth opportunities, including cans expansion projects. The ASX share intends to accelerate A$130 million of capital investment to further expand its cans capacity in Rocklea, Queensland by more than 30%.
Some of the cash will be used to pay shareholder distributions, with the “form and timing” to be communicated “in due course”.
Management commentary
The Orora Managing Director and CEO Brian Lowe said:
Today’s announcement marks a new era for Orora as well as the OPS business as it transitions to Veritiv ownership.
Veritiv’s interest in acquiring OPS provided us with an opportunity to realise an attractive valuation for shareholders and accelerate our strategy of becoming a specialty value-added beverage packaging player.
This leaves Orora with a strong balance sheet, allowing the company to grow our beverage packaging businesses, including further investment in high returning projects such as the expansion of our Rocklea cans facility in Queensland.
The sale is the culmination of a robust process and months of disciplined focus from our team to deliver a compelling outcome for Orora’s shareholders.
We are extremely proud of the way the OPS business has grown and the value it has delivered whilst being part of the Orora Group. Veritiv’s offer is an exciting opportunity for the OPS team to join an industry leader in the North American packaging distribution market, with differentiated capabilities.
Final thoughts on the Orora share price
The leadership are doing what they think is right to help streamline the business and focus on growth in its remaining operations.
I don’t know how much the company can grow earnings from here, it’s not one I’m following closely. For me, there are other better opportunities out there in the ASX growth shares space.
