EU raises objections to Rexam-Ball deal

Rexam has received a statement of objections from the EU Competition Commission regarding the proposed £4.4bn acquisition of the company by Ball Corporation, and it could be instructed to sell its UK operations to rival firms.

In July the EU launched a detailed probe into whether the deal could lead to higher prices for beverage cans. It is thought that the commission is concerned the remaining competitors would not provide sufficient competitive constraints on the merged entity.

However, it is understood that Ball can walk away from the deal if required to divest assets that generate sales of more than £1bn, but would have to pay a break-up fee of about £300m. The group said it will work on a package of remedies to address the EU’s competition concerns.

Typically, the acquirer will have some room to negotiate which plants it has to sell to address the concerns of the competition authorities.

If pushed, Ball is likely to try to select those sites which are the least good fit or least efficient. If the acquiror had felt that after the deal it would have too many plants in a given geographical area it may have planned to close some, which usually costs money – so selling them may not be too much of an issue.

Nicholas Mockett, head of packaging M&A, Moorgate Capital, told Packaging News: “The challenge can arise when an acquirer is forced to make disposals in a given period of time, particularly when there are few buyers. However, even if the perception is that there is a limited number of strategic competitors who would be likely to bid for the divestments, there is a huge amount of private equity capital looking to be deployed and there is an unprecedented level of interest in packaging. Therefore, strategic acquirors may not be able to pick up the divestitures at a discount.”

Earlier this year European Commissioner for Competition Margrethe Vestager, said: “Very many of us buy drinks in cans – they are convenient and used everywhere. It is therefore very important that the Commission makes sure that Ball’s takeover of Rexam does not restrict effective competition and so risk price increases that could be passed on to consumers”.

The Brazilian government has also said the deal raises competition concerns.

Ball, which is based in Colorado, is still confident that all necessary regulatory clearances for the deal will be received by the first half of 2016.