Owens-Illinois to Buy Vitro's Glass Container Business

Glass container maker, Owens-Illinois, Inc. OI has inked a deal to buy the food and beverage glass container business of Mexican company, Vitro, for $2.15 billion. Shares of Owens-Illinois surged 9% on the news as this deal will provide the company a competitive edge in the attractive and growing glass segment of the packaging market in Mexico, further solidifying its position as the world's leading glass container producer.

The deal, which has been approved by boards of directors of both companies, is expected to close in a year, subject to approval from Vitro's shareholders as well as customary regulatory approvals. Vitro is the largest supplier of glass containers in Mexico. The deal involves Vitro's five plants in Mexico and one in Bolivia, with a workforce of 4,700 people. The current management team of Vitro's food and beverage glass container business will remain in place following the acquisition.

The acquired business will add annual revenue of $945 million and adjusted EBITDA of $278 million to Owens-Illinois. The company expects to realize approximately $30 million in run-rate cost synergies by 2018 through both procurement savings and operating efficiencies. The transaction is expected to be accretive to cash flow and earnings per share in the first year after closing. In the third year the deal will add 50 cents per share to earnings and at least $100 million in free cash flow.

Owens-Illinois has secured committed financing from Deutsche Bank AG DB to fund the transaction. The strong free cash flow of the combined business will be utilized to reduce debt, following the transaction.

This is another notable deal in the food-packaging industry following the announcement of Rock-Tenn Company's RKT merger with MeadWestvaco Corporation MWV in January. This collaboration is touted to be one of the major deals in the paper packaging industry as it will create the second-largest U.S. packaging company worth $16 billion, trailing only International Paper Company, which has a market capitalization of nearly $22 billion.

Owens-Illinois currently carries a Zacks Rank #3 (Hold).

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