11th Jun 2007 07:02
Rexam PLC11 June 2007 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTOTHE UNITED STATES, AUSTRALIA, CANADA OR JAPAN. Rexam transforms Plastic Packaging business with acquisition of O-I Plastics Summary • Rexam has agreed to buy OI Plastic Products FTS Inc. ("O-I Plastics")from Owens-Illinois Inc., for a cash consideration of US$1,825 million includinga tax basis step-up with an estimated net present value of US$260 million.Excluding the estimated net present value of the tax basis step up, theeffective cost for O-I Plastics will be US$1,565 million; • O-I Plastics is a leading US manufacturer of rigid plastic healthcarepackaging and plastic closure systems which in 2006 had sales of US$760 millionand underlying profit of US$114 million1; • The acquisition is expected to meet Rexam's cost of capital in 2009based on the effective cost of US$1,565 million and to be modestly earningsenhancing in 2008; • The acquisition will transform Rexam's Plastic Packaging business,creating leading positions in two important growth plastic packaging segments:Healthcare Packaging and Closures; • The acquisition will be an excellent fit in terms of customers,technologies, innovation, end use applications and geography; • The acquisition will offer significant value creation opportunitiesthrough cost and revenue synergies. It is anticipated that these will amount toapproximately US$40 million per annum by 2010; • The effective cost of US$1,565 million represents 2.1 times 2006 salesand 13.7 times 2006 underlying profit. The acquisition will be financed by aplacing of 58,354,700 new ordinary shares (representing approximately 9.99% ofRexam's issued ordinary share capital prior to the placing) and a combination ofa subordinated bond issue and the proceeds from the sale of Rexam's Glassbusiness; • The acquisition is subject to regulatory approvals and Rexamshareholder approval and is expected to complete early in the third quarter of2007. Leslie Van de Walle, Rexam's CEO said: "The acquisition of O-I Plastics willtransform our Plastic Packaging business and is consistent with our strategy toexpand our positions in growth markets. It gives us meaningful scale inPlastics, leading market positions in core growth markets and is anticipated tocreate significant value through synergies and cross-selling opportunities.Following the successful reinvestment of the proceeds from the sale of Glass,Rexam, with its leading positions in Beverage Cans and Plastic Packaging, willhave two significant and strategically well positioned global businesses withgood growth prospects." 11 June 2007 Please note: An analysts and investors meeting, hosted by Leslie Van de Walle,CEO, David Robbie, Finance Director and Graham Chipchase, Group Director PlasticPackaging, will be held today at 9.30 am at Allen & Overy LLP, One BishopsSquare, London E1 6AO. 1 Operating profit including share of post tax profits of associates beforeexceptional items A copy of this release has been posted on the Rexam website, www.rexam.com. Theslide presentation made at the analysts and investors meeting this morning willbe available on demand for viewing in the afternoon (UK) of the day of theannouncement. This summary should be read in conjunction with the full text of thisannouncement. Credit Suisse is acting as exclusive financial adviser to Rexam on theacquisition. ABN AMRO Hoare Govett and Citi are joint brokers to Rexam and jointunderwriters of the equity placing. Enquiries Rexam +44 20 7227 4100Leslie Van de Walle, Chief Executive OfficerDavid Robbie, Finance DirectorJonathan Thornton, Group Communications Director Financial Dynamics +44 20 7269 7121Richard Mountain Credit Suisse +44 20 7888 8888Piers de MontfortAsim Mullick ABN AMRO Hoare Govett +44 20 7678 8000Antonia RowanCaroline Harris Citi +44 20 7986 4000Nigel MillsCharles Lytle The information contained in this announcement is not for release, publicationor distribution, directly or indirectly, in or into the United States,Australia, Canada or Japan. This announcement is not an offer to sell, or asolicitation of an offer to buy (in either case in the United States) anyordinary shares to be issued pursuant to the equity placing announced by theCompany today in connection with the acquisition of O-I Plastics. The shareshave not been and will not be registered under the US Securities Act of 1933, asamended (the "Securities Act"), and may not be offered or sold, directly orindirectly, in the United States absent registration or an exemption fromregistration. There will be no public offering of securities in the UnitedStates. The shares have not been and will not be registered with any regulatoryauthority of any state within the United States. Notes to editors: Rexam is a leading global consumer packaging company and the largest beveragecan maker in the world. Our vision is to be the leading global consumerpackaging company. We are business partners to many of the world's most famousand successful consumer brands as well as young, entrepreneurial start-ups. Weoffer a broad range of packaging products, services and solutions for differentindustries, using different materials and technologies. In 2006, including theGlass business, we had sales of approximately £3.6 billion and employed some24,200 people in more than 20 countries. Three things characterise us -leadership in our industry, our commitment to innovation and our passion todeliver exceptional value. Rexam is a member of the FTSE 100. Rexam's ordinaryshares are listed with the UK Listing Authority and trade on the London StockExchange under the symbol REX. In March 2007, Rexam announced that it is to sellits Glass business for €660m. The deal is subject to regulatory authorityclearance and is awaiting completion. For further information on Rexam, visitwww.rexam.com. This announcement contains forward looking statements, which are based on theBoard's current expectations and assumptions and involve known and unknown risksand uncertainties that could cause actual results, performance or events todiffer materially from those expressed or implied in such statements. Theforward looking statements contained in this announcement are based on pasttrends or activities and should not be taken as a representation that suchtrends or activities will continue in the future. It is believed that theexpectations reflected in these statements are reasonable, but they may beaffected by a number of variables which could cause actual results or trends todiffer materially, including, but not limited to: Rexam's ability tosuccessfully combine the Enlarged Group's business with the business of the O-IPlastics Group; conditions in the market, market position of the companiescomprising the Rexam Group, earnings, financial position, cash flows, return oncapital and operating margins, anticipated investments and economic conditions;the Enlarged Group's ability to obtain capital/additional finance; a reductionin demand by customers; an increase in competition; an unexpected decline inrevenue or profitability; legislative, fiscal and regulatory developments,including, but not limited to, changes in environmental and health and safetyregulations; exchange rate fluctuations; retention of senior management; themaintenance of labour relations; fluctuations in the cost of raw material andother input costs; accounting for defined benefit or other pension schemes; andoperating and financial restrictions as a result of financing arrangements. Nostatement in this announcement is intended to constitute a profit forecast, norshould any statements be interpreted to mean that earnings or earnings perOrdinary Share will necessarily be greater or lesser than those for the relevantpreceding financial periods for Rexam. Rather, these statements should beconstrued as references to potential enhancements to the earnings that mightotherwise have been earned during the relevant financial period. Eachforward-looking statement relates only as of the date of the particularstatement. Except as required by the Listing Rules, the Disclosure andTransparency Rules, the Prospectus Rules, the London Stock Exchange or otherwiseby law, Rexam expressly disclaims any obligation or undertaking to releasepublicly any updates or revisions to any forward looking statements containedherein to reflect any change in Rexam's expectations with regard thereto or anychange in events, conditions or circumstances on which any such statement isbased. Credit Suisse Securities (Europe) Limited which is regulated and authorised inthe United Kingdom by the Financial Services Authority, is acting for Rexam andfor no one else in connection with the acquisition and will not be responsibleto anyone other than Rexam for providing the protections afforded to clients ofCredit Suisse Securities (Europe) Limited or for providing advice in relation tothis announcement and the matters referred to in it. Hoare Govett Limited, which is regulated and authorised in the United Kingdom bythe Financial Services Authority, is acting for Rexam and for no one else inconnection with the equity placing and will not be responsible to anyone otherthan Rexam for providing the protections afforded to clients of Hoare GovettLimited or for providing advice in relation to this announcement and the mattersreferred to in it. Citigroup Global Markets U.K. Equity Limited, which is regulated and authorisedin the United Kingdom by the Financial Services Authority, is acting for Rexamand for no one else in connection with the equity placing and will not beresponsible to anyone other than Rexam for providing the protections afforded toclients of Citigroup Global Markets U.K. Equity Limited or for providing advicein relation to this announcement and the matters referred to in it. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTOTHE UNITED STATES, AUSTRALIA, CANADA OR JAPAN. Proposed acquisition of O-I Plastics Introduction Rexam announces that it has entered into a conditional agreement with Owens-Illinois, Inc. to acquire all the issued and outstanding shares of O-I PlasticProducts FTS Inc. ("O-I Plastics") for a total cash consideration of US$1,825million. The structuring of the transaction is expected to give rise to taxbenefits with an estimated net present value of US$260 million making theeffective cost for O-I Plastics US$1,565 million. O-I Plastics is a leading US manufacturer of rigid plastic healthcare packagingand plastic closure systems which in 2006 had sales of US$760 million and anunderlying profit1 of US$114 million. The acquisition of O-I Plastics, if approved, will transform the scale ofRexam's Plastic Packaging operations and position Rexam as one of the globalleaders in the growth areas of rigid plastic healthcare packaging and closures.It will also offer significant value creation opportunities through cost andother synergies. Completion of the acquisition is conditional on satisfaction of certainconditions including shareholder approval at an Extraordinary General Meeting tobe held on 28 June 2007 and the granting of relevant anti-trust clearances.Completion of the acquisition is expected early in the third quarter of 2007. Rexam and Owens-Illinois, Inc. will file an Internal Revenue Code Section 338(h)(10) election in the US, making the amortisation expense of goodwill and otherassets tax deductible. This will reduce cash tax payable over the next fifteenyears. The net present value of this benefit is estimated at US$260 million.Whilst there will be a cash tax benefit, there will not be any directcorresponding benefit in earnings per share terms due to deferred taxaccounting. It is intended that the acquisition will be financed through an equity placingannounced today and a combination of a subordinated bond issue and the proceedsfrom the Glass disposal. In addition, the Company has entered into a new bankdebt facility which is available to fund the acquisition if, and to the extent,required. Rexam Rexam is a leading global consumer packaging company. It offers a broad range ofpackaging products, services and solutions for many industries, using differentmaterials and technologies. Its packaging solutions are key bearers ofcustomers' brand values. Packaging plays a major role in customers' productpositioning strategies, helping to shape consumers' brand experiences. On 12 March 2007, Rexam announced the disposal of its relatively low growth andcapital intensive Glass business for €660 million. This transaction is expectedto complete before the end of June 2007. 1 Operating profit including share of post tax profits of associates beforeexceptional items Following the disposal of the Glass business, Rexam will have two main businesssegments: Beverage Can and Plastic Packaging, with the latter currentlycomprising six operating divisions: Pharma, Closures & Containers, Home &Personal Care, Dispensing Systems, Make Up and Food. Rexam's strategy Rexam's main objective is to create value for its shareholders and otherstakeholders through its vision of becoming the leading global consumerpackaging company. To achieve this, its strategy is to consolidate the Rexam Group's position in anumber of carefully selected growth markets focusing on quality, service,innovation and reliability for customers, together with continuous improvementin manufacturing and operational and organisational excellence. Rexam will consolidate its position by: growing organically using strong cashgeneration to invest in growth projects; building positions in growth marketsand product segments through disciplined acquisitions; strengtheningrelationships with customers and suppliers; and accelerating the rate ofinnovation to enhance its existing offering to customers. The sale of the relatively low growth and capital intensive Glass business, andthe reinvestment of the proceeds from that sale to acquire O-I Plastics, ahigher growth and cash generative business, are consistent with Rexam'sstrategy. Rexam has a good track record of acquisitions. Its transformation into a leadingglobal consumer packaging group is largely due to the success of its acquisitionstrategy and its ability to integrate the acquired businesses. Following thetransformational acquisitions of PLM in 1999 and American National Can (2000),Rexam has made further acquisitions in its Beverage Can business, Latasa (2003)and Ecanco (2006). These acquisitions complemented the Beverage Can business,improved margins and delivered significant synergies. In addition to acquisitions by the Beverage Can business, Rexam has also made anumber of successful bolt-on acquisitions to its Plastic Packaging business inthis period. These include the Risdon beauty pumps business (2001); RisdonPharma (2003) and Plastic Omnium Medical (2004). More recently, Rexam hasacquired Delta Plastics and Precise Technology (2005) and FangXin, Airspray andTruePack (2006). Background to and reasons for the acquisition The acquisition of O-I Plastics is a key strategic move for Rexam's PlasticPackaging business. It will transform the scale of Rexam's Plastic Packagingbusiness, positioning Rexam as one of the global leaders in the growth areas ofrigid plastic healthcare packaging and plastic closures and offering significantvalue creation opportunities through cost and other synergies. The acquisitionis consistent with Rexam's strategy to strengthen its positions in its chosenmarkets. Going forward, Rexam will have two sizeable and sustainable globalbusinesses with good growth profiles and prospects - Beverage Can and PlasticPackaging. Transforms scale of Rexam's Plastic Packaging business The scale of the enlarged Plastic Packaging operation post completion of theacquisition will provide the critical mass required to be an effective globalplayer in rigid plastic packaging. It will enable performance improvementthrough technology and best practice sharing in manufacturing and other areas,enhanced research and development and innovation capabilities, and furtherstrengthening of management resources. Rexam already has extensive operations in healthcare packaging through itsPharma division in Europe, the US and India, and in closures through itsClosures & Containers division in the US. The acquisition is an excellentstrategic fit in terms of customers, end use applications and geography. More than 90% of O-I Plastics' sales and profits are generated in the US. Thecombination with Rexam's existing Plastic Packaging business will globalise theplatform for O-I Plastics' products, leveraging Rexam's Plastic Packagingbusiness and customer relationships in other parts of the world. Creates strong positions in growth markets The acquisition will establish Rexam as the leading rigid plastic healthcarepackaging manufacturer in the US, in a market currently growing at an annualrate of 7% driven primarily by an ageing population and new drug and medicaldevelopments. It will also position Rexam as the leading plastic closures manufacturer in theUS, in a market that is currently growing at 4% per annum, driven mainly by newproduct development. Globally, Rexam and O-I Plastics combined will rank No. 2in plastic closures. O-I Plastics' long term contracts with major customers and proven new productdevelopment expertise will provide good future growth prospects. Offers significant value creation opportunities O-I Plastics has a record of good top line growth, healthy operating profitmargins and strong cash generation, and the acquisition provides opportunitiesto improve Rexam's operating profit margins. The acquisition will generate significant synergies, which the Directorsanticipate will amount to approximately US$40 million per annum by 2010.Extensive due diligence has identified scope to achieve cost synergies inpurchasing, utilising Rexam's capabilities in the application of leanmanufacturing and six sigma methodologies, sales and administration, as well asthrough optimisation of manufacturing and the supply chain. Significantopportunities have also been identified to create additional value from:incremental growth through enhanced research and development capability,cross-selling of products to complementary customer bases (both in the PlasticPackaging and the Beverage Can businesses); and complementary technology andproduct portfolios. It is expected that the integration costs will be in the region of US$20 millionand, in addition, that there will be a capital investment in new IT systems ofabout US$25 million. These costs will be incurred in 2007 and 2008. Information on O-I Plastics O-I Plastics is a leading US based manufacturer of rigid plastic healthcarepackaging and plastic closure systems, and employs approximately 2,800 people.O-I Plastics is headquartered in Perrysburg, Ohio, US, and operates 19manufacturing plants (including one under construction in Malaysia), 14 of whichare situated in the US and Puerto Rico, the others being located in the emergingmarkets of Brazil, Mexico, Hungary and Singapore. The business also has adedicated research and development facility located at its head office, whichemploys 130 people. O-I Plastics has an extensive portfolio of patents, providing its business witha significant competitive advantage. It holds over 200 US patents and more than300 foreign counterparts to those patents. It currently has more than 90 USpatent applications pending as well as over 100 additional invention records. O-I Plastics is organised as two linked major business units, each with similaroverall revenues. The Healthcare Packaging unit is active in rigid plastichealthcare packaging. As well as manufacturing plastic healthcare closures onbehalf of Healthcare Packaging, the Closures unit manufactures and marketsplastic closures for beverage, food, automotive, home and personal careapplications. Approximately 50% of O-I Plastics' sales are healthcare packagingand around 92% of O-I Plastics' total sales are in the US. The rigid plastic healthcare packaging market Rexam estimates that rigid plastic healthcare packaging in the US is a c. US$4billion market, growing at an annual rate of around 7%. The market comprisescontainers, closures, devices and components for pharmaceutical, medical anddiagnostic customers. The main growth drivers are an ageing and healthcareconscious population and new drug and medical developments. Rexam believes thatO-I Plastics is the market leader in the US. Within this market, O-I Plasticsparticipates in particular segments, including prescription containers,healthcare closures and pharmaceutical and healthcare containers. Growth dynamics vary across the different healthcare packaging market segments.The market segments for pharmaceutical and healthcare containers and closureshave annual growth estimated by Rexam to be around 5%. The market segments forprefillable syringes and medical and diagnostic components and containers aregrowing at over 10% per annum, whereas the market segments for prescriptioncontainers are growing more moderately at1% to 2% per annum. There are a numberof substitution trends within the market segments supplied by O-I Plastics, withgeneric prescription drugs growing at the expense of proprietary prescriptiondrugs, and growth in "over the counter" products. O-I Plastics' Healthcare Packaging business The Healthcare Packaging business unit includes two main operations: HealthcareContainers and Prescription. The Healthcare Containers operation designs, manufactures, assembles and sellsplastic pharmaceutical packaging and medical devices for both human and animalhealth. Products include pharmaceutical containers, ophthalmic bottles,parenteral packaging (for injected or infused drugs), diagnostic containers andsyringes. Key new products which are being developed and manufactured by the HealthcareContainers operation include radio frequency identification-taggedpharmaceutical containers and multi-layer injection blow moulded diagnosticvials. Key Healthcare Containers customers include some leading healthcare companies,including Hospira, McNeil, Pfizer, Alcon, Bausch & Lomb, Bristol Myers Squibb.Much of O-I Plastics' revenues are covered by contracts for periods of up tofive years. The Prescription operation designs, manufactures, and sells a complete range ofplastic prescription packaging systems which are mainly distributed throughpharmaceutical distribution companies to independent pharmacies, pharmacychains, supermarkets and through mail order. Key product lines include plasticvials, ovals for liquids, ointment jars, dropper bottles and child resistantclosures. Prescription containers are typically filled in pharmacies rather thanby the pharmaceutical manufacturer. O-I Plastics has cost effective manufacturing for Prescription products and hasbuilt exclusive contractual relationships with both pharmacies and their, mostlyindependent, general distributors. Key customers for Prescription include Albertsons, Kroger, McKesson, MedcoHealth Solutions, Rite-Aid and Walgreen. Most of the Healthcare Containers and Prescription products are sold with aplastic closure (generally child resistant) produced by the Closures businessunit, thereby providing a system solution for customers. Closures The plastic closures market It is estimated that plastic closures in the US, excluding healthcare closuresand dispensing pumps, is a US$3 billion market, growing at around 4% per annum.Beverage closures, the largest end use segment, is growing at 6% per annum inthe US. O-I Plastics has the leading share of the US plastic closures market. Worldwide,it is one of the top four plastic closures manufacturers. Within this, it has aleading position in the US beverage closures segments for carbonated softdrinks, water and juices. O-I Plastics' Closures business The Closures business, which in this context excludes sales of healthcareclosures, supplies end markets including beverage, food, automotive, home andpersonal care, with closure types including child resistant and dispensingclosures, as well as standard screw closures. Over 90% of Closures' sales arein the US and approximately 90% of these sales are direct to customers, with theremainder through general distributors. O-I Plastics has a particular focus on compression moulding technology whichdelivers low cost on high volume standard screw closures. The Closures business has a strong record of innovation. More than 75% of itsproducts are based on proprietary designs, and a third of sales are fromproducts developed in the last three years. Key customers include all the major soft drink and water beverage companies,including Pepsi Co, Coca-Cola Enterprises and Cott Beverages, as well as leadingfood and consumer goods companies such as Nestle USA and Procter & Gamble.Contracts are for periods of up to five years. O-I Plastics has recently beensuccessful in securing a significant new product contract with a leading softdrink supplier, with strong additional volumes projected from the end of 2007. Other products O-I Plastics also has a custom injection moulding and assembly operation. Themost significant relationship is with Hewlett Packard (HP) through a Singaporefacility dedicated to the manufacture of HP ink jet printer cartridges. A secondHP dedicated facility is currently being built in Malaysia. Financial information From 2004, O-I Plastics has grown in revenue at a compound rate of 7% per annumand underlying profit margins have remained in the range of 15% to 18% for thebusiness as a whole. Within this, the Healthcare Packaging business unit hasconsistently produced the higher margins. During this same period, O-I Plasticshas generated strong operating cash flows. A summary of the trading results for O-I Plastics for the three years ended 31December (on an IFRS basis) is set out below. Year ended 31 December 2006 2005 2004 US$m US$m US$mNet sales 760 753 667EBITDA1 161 172 177Underlying profit2 114 122 118Underlying profit margin 15.0% 16.2% 17.7% The profit before tax for the year ended 31 December 2006 was US$179 millionafter crediting US$65 million interest receivable on balances due fromOwens-Illinois Inc. As at 31 December 2006, O-I Plastics had net assets of US$1,270 million andgross assets of US$1,423 million. Rexam will not acquire certain amounts due toO-I Plastics from O-I Plastics Inc. which, as at 31 December 2006, amounted toUS$727 million. On a pro forma basis, excluding these amounts, O-I Plastics hadnet assets of US$543 million and gross assets of US$696 million. Underlying profits were broadly flat from 2004 to 2006, despite good volume andsales growth across the business units. This is mainly attributable to thesignificant increase in resin prices over the period. O-I Plastics has generallyhad success in passing resin price rises through to customers, albeit with somenegative phasing effects. An additional negative effect was the sale in 2004 ofO-I Plastics' blow moulding business to Graham Packaging. The ensuing transferof equipment and production left some facilities with overcapacity. In addition,O-I Plastics assumed obligations to supply Graham Packaging under a short termcontract manufacturing agreement at low margins. O-I Plastics has leading positions in high growth markets. Its strong trackrecord of new product development combined with new business secured and furtherexpected operating efficiencies are all anticipated to lead to an improvement infuture trading performance. Financial effects of the acquisition The acquisition is expected to create significant value for shareholders. It isexpected to meet Rexam's cost of capital in 2009 based on the effective cost ofUS$1,565 million and be modestly earnings enhancing in 2008. The table belowillustrates how the acquisition would have significantly increased the scale ofRexam's current Plastic Packaging operation, by increasing sales and underlyingprofit before exceptional items, had it been completed at 31 December 2006. Rexam3 O-I Plastics4 £m £mSales:Beverage Can 2,490 -Plastic Packaging 720 413Sales from ongoing operations 3,210 413 Underlying operating profit:Beverage Can 289 -Plastic Packaging 81 61Share of post tax profits of associates 1 1Underlying operating profit from ongoing operations 371 62 1 Operating profit including share of post tax profits of associates beforedepreciation, intangibles amortisation and exceptional items 2 Operating profit including share of post tax profits of associates beforeexceptional items 3 Extracted without adjustment from the audited financial statements of Rexam asat 31 December 2006 except that £4 million of central costs previously allocatedto the underlying operating profit of the Glass division have been re-allocatedto Beverage Can (£3 million) and Plastic Packaging (£1 million). 4 O-I Plastics amounts expressed in US dollars have been translated intosterling using the exchange rate US$1.84 to £1.00, being the average rate ofexchange for the year ended 31 December 2006. Management and organisation of the enlarged Group Following the acquisition, the enlarged Group will continue to be managed by thecurrent executive Directors. No changes to the Board are anticipated. The integration of O-I Plastics into Rexam's existing Plastic Packaging businesswill be overseen by Graham Chipchase, an executive Director and Rexam's GroupDirector of Plastic Packaging, and a dedicated integration team comprisingmembers of Plastic Packaging operational management as well as members of thecurrent O-I Plastics management team. It is intended that the O-I PlasticsHealthcare Packaging and Closures businesses will be merged with Rexam's currentPharma division and Closures & Containers division respectively. The enlarged Plastic Packaging business will be managed on the same basis aspreviously, with six divisional directors (Healthcare (formerly Pharma),Closures (formerly Closures & Containers), Home & Personal Care, DispensingSystems, Make Up and Food) reporting to Graham Chipchase. Financing of the acquisition The cash consideration for the acquisition will be US$1,825 million subject tocertain purchase price adjustments by reference to the O-I Plastics' balancesheet. This will be financed through the equity placing announced this morning,a combination of the subordinated bond issue of up to approximately £500 millionand the proceeds from the sale of the Glass business. Rexam has also entered into a new bank debt facility under which a creditfacility of £1,300 million will be available for drawdown should the proceeds ofthe subordinated bond issue and/or the proceeds from the sale of the Glassbusiness not have been received by Rexam prior to completion of the acquisition. It is anticipated that the Glass disposal will be completed before the end ofJune 2007. It is the view of the Directors that the equity placing, and the combination ofthe subordinated bond issue and the proceeds from the sale of the Glass businesswill maintain Rexam's current public credit ratings as ascribed by the ratingagencies, Moody's Investors Service Ltd and Standard & Poor's Rating Services, adivision of The McGraw-Hill Companies, Inc. Equity placing Rexam today announced an underwritten equity placing of 58,354,700 new ordinaryshares. The placing shares will be placed, subject to the terms and conditionsof a placing agreement entered into between Rexam, and Hoare Govett Limited andCitigroup Global Markets Limited. The placing shares represent approximately9.99% of Rexam's issued ordinary share capital prior to the equity placing. If the acquisition does not complete, Rexam will use the funds raised in theequity placing for further investment opportunities or general corporatepurposes. Subordinated bond issue Rexam proposes to launch a subordinated bond issue shortly, subject tosatisfactory market conditions. The subordinated bond issue is targeted to raisenet proceeds of up to £500 million (or equivalent in other currencies)denominated in sterling and/or euro to be used by Rexam towards the cashconsideration for the acquisition. The subordinated bond issue will be offeredinto the institutional bond markets. The subordinated bonds will rank behind all of Rexam's senior debt including anyborrowings under the new bank debt facility. The subordinated bonds willcontain no financial covenants and limited events of default. It is expected,subject to confirmation from the rating agencies, that the subordinated bondswill be treated partially as equity in the calculation by the rating agencies ofRexam's public credit ratings. The subordinated bonds will be accounted for asdebt by Rexam. The subordinated bonds are anticipated to have a scheduled maturity date of morethan 50 years from date of issue, subject to an option for Rexam to redeem thesubordinated bonds on the tenth anniversary of issuance. It is Rexam's currentintention to replace the subordinated bonds if redeemed, or on maturity, withother subordinated bonds that have similar features to those outlined above. If the acquisition is not completed, Rexam will use the funds raised from thesubordinated bond issue for further investment opportunities or generalcorporate purposes. Alternatively, Rexam can redeem the subordinated bonds at101% of the principal amount raised. In the unlikely event that the subordinated bond issue does not complete, due toa prolonged period of adverse market conditions, the funding shortfall would becovered by senior debt facilities, which may lead the rating agencies to reviewRexam's current credit ratings. New bank debt facility In addition, on 11 June 2007, Rexam entered into a new bank debt facility toprovide a new bank credit facility for an aggregate amount of £1,300 million.This agreement has been entered into for the purpose of providing part of thenecessary funding for the acquisition, including fees and expenses, but only ifrequired as described above. Current trading and prospects of Rexam, O-I Plastics and the enlarged Group Rexam At Rexam's Annual General Meeting on 3 May 2007, Rexam issued a trading updatein which Rexam's Chairman, Rolf Borjesson, said: "I am pleased to report that trading during the first quarter was on track. In our European Beverage Cans, we have implemented price increases on the opencontracts, and volume growth continues to be strong helping to balance higherthan expected aluminium costs. In the Americas, whilst volumes remain buoyantin South America, demand for soft drinks cans in the US has started slowlyacross the industry, although it is early in the season. A strike began on 10 April affecting nine of our North American beverage canplants. On 1 May, we negotiated a Tentative Agreement with the United SteelWorkers and our plant union presidents, which will be put to the members' votelater this week. To date we estimate that the strike has cost up to £15million. From a customer perspective, we have managed to minimise disruption anddeliveries have been broadly unaffected. Plastic Packaging overall is on plan and the restructuring programme announcedlate last year in Make Up is nearing completion. Excluding the effect of the US strike, we currently anticipate the outcome forthe year as a whole to be in line with our expectations, although, as advised atthe preliminary results in February 2007, we still expect the impact of inputcosts to be most severe in the first half of the year." The strike in the US ended on 8 May 2007 and all affected plants have returnedto production. Since the update on 3 May, Rexam's view on trading has notaltered. O-I Plastics Owens-Illinois Inc. issued the following statement regarding its PlasticPackaging operations in conjunction with its first quarter results presentationon 25 April 2007: "Plastic Packaging net sales for the first quarter of 2007 were $188.3 millioncompared with $199.6 million reported in the same quarter last year. Modestlyhigher unit sales of closures and prescription products during the first quarterof 2007 were more than offset by the non recurrence of $7.9 million of salesfrom the Company's former plastics business in Australia and $3.3 million ofsales from transition contract manufacturing with the Company's former blowmoulded plastics business in the US during the first quarter of 2006. Inaddition, sales were reduced by $6.3 million from lower resin costs passedthrough to customers. Excluding these items, Plastic Packaging's net sales forthe first quarter 2007 were up 3.4% compared with the prior year period." The enlarged Group The Board believes that, following completion, the enlarged Group will be wellplaced to maintain and enhance its leading position in US rigid plastichealthcare packaging and closures. The Board has confidence in the financialand trading prospects of the enlarged Group for the current financial year.Whilst not losing sight of the business performance of the current PlasticPackaging business and the delivery of its 2007 targets, much of the focus ofthe Plastic Packaging business will be directed at integrating and assimilatingO-I Plastics' operations and starting to realise synergies from the cost savingsand operational efficiencies outlined in this announcement. Dividend policy Following the acquisition, and assuming a continuing stable market environment,Rexam intends to maintain its current dividend policy to increase the dividendpayout on the ordinary shares by approximately 5% per annum. Break fees If the acquisition agreement is terminated, Rexam has agreed to payOwens-Illinois Group, Inc. a termination fee of either (i) US$15 million if the termination is due to the failure of Rexam'sshareholders to approve the acquisition or if the Rexam Board withdraws itsrecommendation that they should do so, or (ii) US$30 million if the termination is due to the requisite anti trustapprovals not being obtained before 30 September 2007. Shareholder circular and outline timetable Rexam intends to post a circular to Rexam shareholders giving full details ofthe acquisition, and including notice of an Extraordinary General Meeting (EGM).The EGM is scheduled to be held on 28 June 2007 and completion of theacquisition is expected early in the third quarter of 2007. 11 June 2007 Enquiries Rexam +44 20 7227 4100Leslie Van de Walle, Chief Executive OfficerDavid Robbie, Finance DirectorJonathan Thornton, Group Communications Director Financial Dynamics +44 20 7269 7121Richard Mountain Credit Suisse +44 20 7888 8888Piers de MontfortAsim Mullick ABN AMRO Hoare Govett +44 20 7678 8000Antonia RowanCaroline Harris Citi +44 20 7986 4000Nigel MillsCharles Lytle The information contained in this announcement is not for release, publicationor distribution, directly or indirectly, in or into the United States,Australia, Canada or Japan. This announcement is not an offer to sell, or asolicitation of an offer to buy (in either case in the United States) anyordinary shares to be issued pursuant to the equity placing announced by theCompany today in connection with the acquisition of O-I Plastics. The shareshave not been and will not be registered under the US Securities Act of 1933, asamended (the "Securities Act"), and may not be offered or sold, directly orindirectly, in the United States absent registration or an exemption fromregistration. There will be no public offering of securities in the UnitedStates. The shares have not been and will not be registered with any regulatoryauthority of any state within the United States. Notes to editors: Rexam is a leading global consumer packaging company and the largest beveragecan maker in the world. Our vision is to be the leading global consumerpackaging company. We are business partners to many of the world's most famousand successful consumer brands as well as young, entrepreneurial start-ups. Weoffer a broad range of packaging products, services and solutions for differentindustries, using different materials and technologies. In 2006, including theGlass business, we had sales of approximately £3.6 billion and employed some24,200 people in more than 20 countries. Three things characterise us -leadership in our industry, our commitment to innovation and our passion todeliver exceptional value. Rexam is a member of the FTSE 100. Rexam's ordinaryshares are listed with the UK Listing Authority and trade on the London StockExchange under the symbol REX. In March 2007, Rexam announced that it is to sellits Glass business for €660m. The deal is subject to regulatory authorityclearance and is awaiting completion. For further information on Rexam, visitwww.rexam.com. This announcement contains forward looking statements, which are based on theBoard's current expectations and assumptions and involve known and unknown risksand uncertainties that could cause actual results, performance or events todiffer materially from those expressed or implied in such statements. Theforward looking statements contained in this announcement are based on pasttrends or activities and should not be taken as a representation that suchtrends or activities will continue in the future. It is believed that theexpectations reflected in these statements are reasonable, but they may beaffected by a number of variables which could cause actual results or trends todiffer materially, including, but not limited to: Rexam's ability tosuccessfully combine the Enlarged Group's business with the business of the O-IPlastics Group; conditions in the market, market position of the companiescomprising the Rexam Group, earnings, financial position, cash flows, return oncapital and operating margins, anticipated investments and economic conditions;the Enlarged Group's ability to obtain capital/additional finance; a reductionin demand by customers; an increase in competition; an unexpected decline inrevenue or profitability; legislative, fiscal and regulatory developments,including, but not limited to, changes in environmental and health and safetyregulations; exchange rate fluctuations; retention of senior management; themaintenance of labour relations; fluctuations in the cost of raw material andother input costs; accounting for defined benefit or other pension schemes; andoperating and financial restrictions as a result of financing arrangements. Nostatement in this announcement is intended to constitute a profit forecast, norshould any statements be interpreted to mean that earnings or earnings perOrdinary Share will necessarily be greater or lesser than those for the relevantpreceding financial periods for Rexam. Rather, these statements should beconstrued as references to potential enhancements to the earnings that mightotherwise have been earned during the relevant financial period. Eachforward-looking statement relates only as of the date of the particularstatement. Except as required by the Listing Rules, the Disclosure andTransparency Rules, the Prospectus Rules, the London Stock Exchange or otherwiseby law, the Company expressly disclaims any obligation or undertaking to releasepublicly any updates or revisions to any forward looking statements containedherein to reflect any change in Rexam's expectations with regard thereto or anychange in events, conditions or circumstances on which any such statement isbased. Credit Suisse Securities (Europe) Limited which is regulated and authorised inthe United Kingdom by the Financial Services Authority, is acting for Rexam andfor no one else in connection with the acquisition and will not be responsibleto anyone other than Rexam for providing the protections afforded to clients ofCredit Suisse Securities (Europe) Limited or for providing advice in relation tothis announcement and the matters referred to in it. Hoare Govett Limited, which is regulated and authorised in the United Kingdom bythe Financial Services Authority, is acting for Rexam and for no one else inconnection with the equity placing and will not be responsible to anyone otherthan Rexam for providing the protections afforded to clients of Hoare GovettLimited or for providing advice in relation to this announcement and the mattersreferred to in it. Citigroup Global Markets U.K. Equity Limited, which is regulated and authorisedin the United Kingdom by the Financial Services Authority, is acting for Rexamand for no one else in connection with the equity placing and will not beresponsible to anyone other than Rexam for providing the protections afforded toclients of Citigroup Global Markets U.K. Equity Limited or for providing advicein relation to this announcement and the matters referred to in it. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
REX.L