Aluminium beverage can manufacturers’ merger could prove costly for the consumers

Ball (BLL) delivered a strong performance in the second quarter of FY2016. CEO John Hayes said on Thursday that with this performance the firm has set up a foundation for a "multi-year, value-compounding growth period." One stone in that 'foundation' is the recent buy-out of London-based (aluminium) beverage can manufacturer Rexam. However, market watchers believe this source of growth could cost consumers!

"This is now a concentration of power," said TheStreet's analyst Jim Cramer in a recent world TV show, "You saw a remarkable quarter coming when that consolidation occurred ... they are going to put the screws to everybody."



The $6.1 billion acquisition, which was completed on June 30, created the world's largest beverage can manufacturer. But in order for the merger to happen seamlessly, it needed to pass several regulatory approvals.

Upon the approval, the Broomfield, Colorado-based Ball immediately began integrating the new business into its global aluminium can operations and is expecting to see the effects of the deal soon.

The consolidation creates newfound pricing power for Ball. And if the company drives up the price for its products, it could mean that customers such as Coca-Cola (KO), PepsiCo (PEP) and brewer MillerCoors would pay more. This could create a situation in which those companies would need to pass on the cost escalation to their customers to offset the price of Ball products.

However, Ball is yet to come clear with its plans to have a price discussion with its customers.