Drinks can makers Ball, Rexam launch US$3b asset sale ahead of merger

Drinks can manufacturers Ball Corp and Rexam Plc have begun the process of selling assets, potentially worth more than US$3 billion, to meet antitrust regulations ahead of their planned merger, several people familiar with the matter said.

Both companies are expected to meet with representatives of buyout groups Blackstone , Apollo , CVC, Onex and Madison Dearborn, as well as with peers Silgan and Ardagh, before final bids are due in mid-March, the sources said.

US-based Ball's planned £4.4-billion (US$6.4 billion) takeover of Britain's Rexam will merge the world's two largest beverage can makers by volume - which supply Coca-Cola Co and Anheuser-Busch InBev - and should improve efficiency and cut costs. However, the deal triggered concerns in the European Commission that it would drive up prices for companies and consumers.

Ball said last week that it expects to close the merger in the first half of 2016, after receiving conditional regulatory clearance in Europe. The two companies have offered to sell 12 plants across Europe, 10 of which make cans and two produce can ends. Four of the factories are in Germany and three in Britain. Separately, Ball is selling about eight sites in the United States and several in Brazil, also due to antitrust concerns.

The assets on the block are expected to post US$420 million in annual earnings before interest, tax, depreciation and amortization this year and may be valued at up to eight to nine times that in any potential deals, the sources said. Peers trade at an average multiple of nine times their expected core earnings.

While strategic players are often able to outbid private equity groups in auction processes due to their ability to reap synergies from a merger, the buyout groups may have an edge in this sale: speed.

"The seller needs to have security that the deal goes through smoothly to make the bigger merger work. And companies like Silgan may have antitrust issues of their own, which could delay any deal," one of the sources aid.

The source added that in Ardagh's case, debt levels may be an issue. The Ireland-based group last year pulled a planned initial public offering of its cans business, which would have reduced its €4.8 billion of net debt, and it may now shy away from taking on too much additional leverage to finance another acquisition.