EUR 850.00 For Business Accounts Only

Morningstar | Owens-Illinois Purchases 49% of Central American Manufacturer; Maintaining $19.50 FVE

Owens-Illinois announced this morning that it purchased 49% of Empresas Comegua, a glass bottle manufacturer operating out of Central America and the Caribbean for $119 million. Empresas has facilities located in Costa Rica and Guatemala. The deal expands Owens-Illinois' footprint in Latin America, which is one of the company's most profitable regions. Management disclosed that the deal valued the business at just under 6 times estimated 2018 EBITDA. We view this as a reasonable price given our terminal value EV/EBITDA multiple of 7.25 for Owens-Illinois, and other comparable deal multiples. Having updated our model to incorporate the deal, our $19.50 fair value estimate and narrow moat rating are unchanged.

Given that Owens-Illinois still owns a minority position, the new position will flow through equity earnings. We assume depreciation as a percent of sales will approximate that of Owens-Illinois' legacy Latin America segment. We also assume a tax rate of 20% to model the impact on equity income in 2018 and beyond. In 2018, we estimate the increase will amount to just under $2 million before annualizing at around $14.2 million in 2019. While Owens-Illinois will likely improve operating efficiency to some extent, we don't expect material gains in equity income attributable to synergies, but rather slow growth as volumes tick higher over time.