Amcor to spin off distribution arm
The demerger was announced to the market on Thursday and will mean Amcor Australasia and Packaging Distribution will operate as its own listed company.
The new company will be focused on the supply and distribution of glass bottles, beverage cans and cardboard packaging, primarily in Australia and the US, leaving Amcor to concentrate on flexible and rigid plastics.
Amcor chief executive and managing director Ken MacKenzie said the split would enhance shareholder value by allowing each company to pursue its own growth strategies.
"Today, within Amcor, there are two very different packaging companies and the decision to demerge AAPD is the next logical step in the Amcor journey," he said.
"AAPD is well positioned to stand alone as a separate, listed company. It has strong management and an experienced board, is well positioned in its market segments and has a number of exciting growth opportunities."
The move comes as high-profile companies, including Brambles and News Corporation, embark on high-stakes, multibillion-dollar demergers.
Last month, pallet supplier Brambles announced it would separate from its data management business, Recall. It follows the decision by News Corporation to hive off its newspaper and publishing side of the business.
Investors welcomed the Amcor decision, the shares rose 15¢, or 1.4 per cent, to close at $10.74.
Analysts said the split would have minimal impact on Amcor but warned the new company could face some challenges given its exposure to the struggling local food manufacturing industry.
"The division has borne some of the pain that the general manufacturing sector has experienced as a result of the higher Aussie dollar," CIMB Securities analyst Andrew Scott said.
Mr MacKenzie said the business was "well positioned to be sustainable in the Australian manufacturing environment. We're very supportive of the beverage industry in Australia ... It's a solid segment and I don't think it's really exposed to big import competition."
The new business will be headed by the division's president Nigel Garrard and chaired by Chris Roberts, who will step down as chairman of the Amcor board.
Amcor is expected to release its full-year results on August 19. Mr MacKenzie said details of the demerger would be issued in November. The Australasian packaging distribution arm netted $2.8 billion in sales last financial year, according to Amcor's 2012 annual report.
Morningstar analyst Nathan Zaia said the announcement "came out of left field" but made sense. "It is always difficult when a corporation has different business divisions competing for their share of available capital."
Frequently Asked Questions about this Article…
Amcor announced it will demerge its $2.8 billion Australasian distribution business into a separate listed company called Amcor Australasia and Packaging Distribution (AAPD). The demerger was announced to the market on Thursday and the new business will operate as its own listed entity.
The new company will focus on the supply and distribution of glass bottles, beverage cans and cardboard packaging, primarily in Australia and the US. Amcor will retain and concentrate on its flexible and rigid plastics businesses.
Amcor’s CEO Ken MacKenzie said the split should enhance shareholder value by allowing each business to pursue its own growth strategies. He described there being two very different packaging companies within Amcor and said AAPD is well positioned to stand alone with strong management and growth opportunities.
The new business will be headed by the division’s president, Nigel Garrard, and chaired by Chris Roberts, who will step down as chairman of the Amcor board to take the role.
Amcor is expected to release its full-year results on August 19. Company management said details of the demerger would be issued in November. The Australasian packaging distribution arm reported $2.8 billion in sales in the last financial year, according to Amcor’s 2012 annual report.
Investors reacted positively: Amcor shares rose 15 cents, or 1.4 percent, to close at $10.74 on the day the demerger was announced.
Analysts said the split should have minimal impact on Amcor overall but warned the new company could face challenges because it’s exposed to the struggling local food manufacturing industry. CIMB Securities’ Andrew Scott noted the division had felt pain from a higher Australian dollar, while Morningstar’s Nathan Zaia said the move made sense given competing capital demands within a diversified group.
Consider both potential benefits—clearer strategic focus for Amcor and AAPD, dedicated management and possible improved shareholder value—and the risks highlighted by analysts, such as AAPD’s exposure to local food manufacturing pressures and currency headwinds. Also note upcoming dates for more information (full-year results on August 19 and demerger details in November) before making decisions.
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