Ball Corp to buy British drinks can maker Rexam for $6.9 bln

U.S. drinks can maker Ball Corp agreed to buy British rival Rexam Plc in a sweetened 4.43 billion pounds ($6.9 billion) deal, creating an industry giant that can better manage capital spending and costs as aluminium premiums rise.

The cash-and-stock deal would merge the world's two largest beverage can makers by volume into a combined entity that could serve as a single supplier to customers across diverse markets. It would also reduce warehousing and transport costs for the can makers, which are contending with record-high premiums, the surcharge they must pay to traders on top of cash metal prices to obtain aluminium.

Shares of Rexam, which makes cans for Coca-Cola Co and Anheuser-Busch InBev SA, rose more than 6 percent to 571.5 pence in early trading before falling back, and were significantly below the indicated price of 628 pence per share.

Rexam and Ball each control slightly more than a fifth of the global market. Their nearest competitor, Crown Holdings Inc , has a 19 percent share, according to Vertical Research Partners.

Together, Rexam and Ball account for 60 percent of beverage can supply in North America, 69 percent in Europe and 74 percent in Brazil, according to Morningstar analysts.

Rexam, which on Thursday reported lower 2014 sales, has a big presence in Scandinavia, Russia and India. Ball has a strong foothold in China.

Ball can walk away from the deal if required to divest assets that generate sales of more than $1.58 billion, but the company would have to pay a break-up fee of about 300 million pounds, roughly 7 percent of the deal value.

Ball executives, speaking on a different conference call, said it was premature to assume divestments would be required. The company said it expects clearance by the first half of 2016.

Broomfield, Colorado-based Ball said it expects the deal to result in synergies of $300 million by 2018.

The company will finance the deal, which values Rexam at $8.4 billion including debt, using a 3.3 billion pounds bridge loan, a $3 billion revolving credit facility and $2.2 billion of new equity.