Apollo Taking Berry Plastics Public With Twice the Debt of Peers

Apollo Taking Berry Plastics Public With Twice the Debt of Peers
Caesars Entertainment Corp. raised $16.3 million in February after scrapping a $531 million IPO in 2010. Photographer: Ronda Churchill/Bloomberg

Apollo Global Management LLC is attempting an initial public offering of Berry Plastics Group Inc. at a valuation in line with its peers, even as the packaging company carries a debt load twice as large.

Berry, which Apollo bought in 2006, is seeking to raise as much as $529.4 million, giving it an enterprise value of 8.8 times earnings before interest, taxes, depreciation and amortization in the year through June. That compares with an average of 8.7 times among publicly traded rivals, according to data compiled by Bloomberg. Meanwhile, net debt after the IPO is projected to be $4.1 billion, or 6 times Ebitda, more than twice the level of competitors such as Bemis Co., the data show.

Apollo, which has shelved proposed offerings this year for Hardee’s owner CKE Inc. and chemicals maker Momentive Performance Materials Holdings LLC, may be pricing Berry more attractively as the firm prepares to raise as much as $12 billion for a new fund, according to Michael Holland, chairman of New York-based Holland & Co. Berry’s higher debt load may still give investors pause, even with a valuation similar to its peers, said Todd Wenning of Morningstar Inc.

“Relative to the other players in the field, they stand out as having a higher debt load and little bit more risky balance sheet,” Wenning, a Chicago-based analyst, said in a telephone interview. “As an investor, if they’re trading one-to-one valuation wise, certainly there would be a concern about the balance sheet.”

New Fund

Evansville, Indiana-based Berry is offering 29.4 million shares in its IPO for $16 to $18 each and will use the proceeds to repay debt, according to a regulatory filing. The offering, representing a 26 percent stake in the company, is scheduled for later today, according to data compiled by Bloomberg. Berry’s net debt-to-Ebitda ratio following the IPO compares with the median ratio of about 2.6 times for similar-sized peers, data compiled by Bloomberg show.

Melissa Mandel Kvitko, a spokeswoman for Apollo at Rubenstein Associates Inc., declined to comment.

Apollo has been seeking to sell its portfolio companies back to the public to return money to clients as it prepares to market a new flagship buyout fund. The New York-based firm expects to start marketing the pool later this year, seeking $10 billion to $12 billion, two people with knowledge of the plans have said.

While companies owned by Apollo such as Caesars Entertainment Corp. and Rexnord Corp. have raised at least $442.6 in initial offerings this year, the firm shelved sales by CKE and Momentive totaling $1.08 billion when they failed to get the demand they had forecast.

Cashing In

“There are very few things that are more useful in the marketing sense for a PE firm than to be able to ring the cash register,” Holland, who oversees more than $4 billion, said in a telephone interview. “For someone like Apollo to come out and price something intelligently, and not try to rip off the buyers in the IPO, is very smart.”

Ebitda at Berry was $680 million in the 12 months through June 30, filings show. The company also disclosed adjusted Ebidta of $784 million during the period, which excludes charges for restructuring. The IPO price-range midpoint values the company’s outstanding common stock at $1.9 billion.

Silgan, Bemis

Aptargroup Inc., the Crystal Lake, Illinois-based maker of closures and valves for packaging foods and cosmetics, has an enterprise value of $3.5 billion, or 8.7 times Ebitda of $405.3 million in the last year, according to data compiled by Bloomberg. Container maker Silgan Holdings Inc., based in Stamford, Connecticut, has an enterprise value of $4.4 billion, or 8.6 times Ebitda, and Neenah, Wisconsin-based Bemis is valued at $4.7 billion, or 8.7 times Ebitda, the data show. Berry names these companies as competitors in regulatory filings.

Apollo had registered seven portfolio companies for potential IPOs as of Aug. 2, President Marc Spilker said at the time, after completing offerings for two of its larger holdings earlier in the year. Caesars raised $16.3 million in February after scrapping a $531 million IPO in 2010, and ball-bearing maker Rexnord raised $426.3 million in its March offering, pricing the stock at the low end of the planned range. CKE and Momentive were postponed later in August.

Ceva Logistics Inc., a U.K.-based supply-chain management company owned by Apollo, filed in May to raise $400 million in a U.S. sale. The company, which hasn’t specified the number of shares it plans to sell or a price range, applied to list its shares on the New York Stock Exchange under the ticker symbol CEVL.

Apollo and Graham Partners, which bought Berry from Goldman Sachs Group Inc. and JPMorgan Chase & Co. in 2006, will retain 59 percent and 5.4 percent, respectively, of the company’s common stock after the IPO, filings show. The shares will be listed on the NYSE under the symbol BERY.

Bank of America Corp., Citigroup Inc., Barclays Plc and Deutsche Bank AG are leading the sale.

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