EUR 850.00 For Business Accounts Only

Morningstar | Narrow-moat Amcor Eyes Bemis in Potential All-scrip Deal; Putting Amcor Under Review

We place narrow-moat Amcor under review, following the halt of trade in its shares pending an announcement relating to the acquisition of the largely U.S.-based flexible packaging player, Bemis Co. News of the potential for a deal to be announced early this week was originally reported Aug. 3 in the U.S. financial press. Terms have not been ascertained, outside of the potential for it to be structured as an all-scrip deal. Bemis shares surged in Friday trade on the news, closing up 11% at USD 51.53 per share. As such, Bemis shares now trade approximately 5% above our fair value estimate of USD 49.00 per share, and should the deal proceed around this price, Bemis shareholders would be a fairly compensated, in our view.

Despite what looks to us like a full price for Bemis, cost synergies are likely to be realised given Amcor's existing North American manufacturing capacity, although management have not yet outlined details as to their quantum. That said, potential synergies should provide Amcor with headroom to offer a price that sees Bemis shareholders acquiesce while still making for a value-accretive deal for Amcor's existing shareholders. We are also positive on the incremental scale in North America that Amcor will derive should the deal close, with additional scale helping to further embed its cost advantage in resin procurement as a scale player in the Americas. We await the specifics of the deal before making any final determination on the impact to our Amcor fair value estimate, however.

Amcor's shares are fully valued, in our view, having closed at AUD 15.28 per share on Friday and thus trade around 9% above our fair value estimate of AUD 14.00. The deal structure, as it is currently understood, is therefore not viewed as problematic for Amcor's existing shareholders who would not be diluted from new issuance at current share price levels.