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Baird Says Berry Plastics' AEP Acquisition Is Strategically, Financially Accretive


Baird has maintained its Outperform rating on Berry Plastics Group Inc (NYSE: BERY) following its deal to buy AEP Industries Inc. (NASDAQ: AEPI) for $765 million.

Berry expects to realize cost synergies of $50 million or more annually. The deal would be accretive to Berry's adjusted net income and adjusted free cash flow by more than 10 percent. On a pro forma basis, Berry's four quarters ended June 2016 adjusted free cash flow would increase by approximately $85 million to $560 million.

"In our opinion, the addition of AEP Industries to the Berry Plastics portfolio adds an increased critical mass dimension to the company and the plastics packaging industry as a whole, noting that the combination is both strategically and financially accretive," analyst Ghansham Panjabi wrote in a note.

Panjabi believes the free cash flow profile of the combined enterprise should top $650 million post integration (about $0.50 accretion on an EPS basis) and trend towards 4x net debt:EBITDA by the end of 2017.

"[W]e believe that the investment profile for Berry Plastics has improved post the AEPI acquisition, with BERY one of our top picks within the Defensive Packaging sub-set (~11% free cash flow yield on FY17E)," Panjabi added.

The analyst also raised his price target to $55 from $48.

Latest Ratings for AEPI

Mar 2013DowngradesBuyNeutral

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Posted-In: Baird Ghansham PanjabiAnalyst Color M&A Price Target Reiteration Analyst Ratings


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