Jan. 14 (Bloomberg) -- Cie. de Saint-Gobain SA agreed to sell the U.S. business of its Verallia glass bottle-and-jar unit to Ardagh Group SA for $1.7 billion in a deal that tops the valuation placed on it in an earlier spinoff attempt.
“It puts a high value on our North American containers business, above the multiples contemplated at the time of the planned IPO,” said Saint-Gobain Chief Executive Officer Pierre-Andre de Chalendar. In 2011, the French company sought to raise as much as 1.1 billion euros ($1.5 billion) by selling 40 percent of Verallia in an initial public offering, only to be prevented by a market slump amid the sovereign debt crisis.
Saint-Gobain is exiting packaging to focus on homebuilding and renovation products, glass used in cars and construction, and high-performance materials such as refractories. Closely-held Ardagh, a Luxembourg-based glass and metal packaging company with clients such as brewer Heineken NV and cosmetics maker L’Oreal SA, said the deal will increase its glass business globally by almost 60 percent and help winning new clients in the U.S. wine industry.
Saint-Gobain shares climbed as much as 4.4 percent to 33.10 euros in Paris trading and were up 2.3 percent as of 1:25 p.m., giving the company a market value of 17.4 billion euros.
“This transaction is positive news, especially at this current multiple,” said Sven Edelfelt, an analyst at Bryan, Garnier & Co in Paris.
Ardagh plans to raise $1.45 billion in debt, denominated in both euro and dollar senior secured notes and senior notes, to finance the purchase.
“VNA is a very innovative business that would allow us to expand our glass operations into the very important wine sector in the U.S. for the first time,” Ardagh CEO Niall Wall said.
The offer is binding and irrevocable, Ardagh said. After completion of this transaction, it would operate 113 facilities in 26 countries, employ some 22,000 people and have global sales exceeding 5.4 billion euros, it said.
In July 2012, Ardagh agreed to buy U.S.-based peer Anchor Glass Container Corp. from Wayzata Investment Partners LLC for $880 million to boost its American business. In 2011, Ardagh said it will buy Impress Cooperatieve U.A. for 1.7 billion euros from private-equity firm Doughty Hanson & Co.
The Verallia North America deal “would increase the size of our glass business globally by almost 60 percent and be a very significant step in developing our operations in the U.S.,” said Ardagh Chairman Paul Coulson. “It would result in approximately 40 percent of Ardagh Group’s total sales and Ebitda being generated in the U.S.”
The transaction values Verallia North America, the second-largest glass container maker in the U.S., at 6.5 times 2012 earnings before interest, taxes, depreciation and amortization, according to Saint-Gobain, which is based in Courbevoie near Paris.
The 2011 IPO would have valued Verallia between 5.8 times and 6.4 times Ebitda, and transactions in the industry have been made at between 5.5 times and six times earnings, the CEO said.
The agreement with Ardagh is a “new milestone” in Saint-Gobain’s strategic refocusing and proceeds will be used to primarily strengthen the balance sheet and pursue small or medium-sized targets, de Chalendar said. Saint-Gobain is pursuing targets in Asia and other emerging markets, and wants to grow in energy-efficiency products, as well as consolidate its positions in distribution, he said.
The results of Verallia North America, which had estimated revenue of $1.62 billion in 2012, are at their “highest historical level,” de Chalendar said.
The rest of Verallia, which mostly has operations in Europe, and some plants in Algeria and South America, had annual sales of more than 2.5 billion euros and Ebitda of more than 500 million euros, the CEO said. It will be sold when conditions are “attractive” for Saint-Gobain and its shareholders, de Chalendar said.
All options are open, including an IPO at some point, though European markets don’t allow for a share sale “today,” he said. Owens-Illinois Inc., the world’s largest maker of glass bottles and jars ahead of Verallia, is unlikely to be interested in Verallia’s European assets, de Chalendar said.
Saint-Gobain is discussing the planned disposal of the Verallia North American business with unions ahead of a planned completion date later this year.
The purchase is timed with signs of recovery in retail spending in the U.S. A housing-market rebound, higher stock prices and an improving job market are helping sustain consumer spending, which accounts for about 70 percent of the economy.
U.S. retail sales probably rose in December as Americans wrapped up their holiday shopping and auto dealers closed out the best two months since 2008, economists said before a report this week. The 0.2 percent increase would follow a 0.3 percent gain in November, according to the median forecast of 72 economists surveyed by Bloomberg before the Commerce Department’s figures on Jan. 15.
Other reports are projected to show homebuilding picked up, manufacturing expanded and the cost of living remained contained.
Citigroup Inc. advised Ardagh and committed financing for the deal, supported by legal firms Freshfields Bruckhaus Deringer LLP and Shearman and Sterling LLP.
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