Deals

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Packaging is everywhere in modern life, yet it's easy to miss how it's changing our world.

If you're the sort of affluent, urban consumer who's likely to be reading this article, you may think fears of non-degradable landfill and choked turtles are gradually killing off plastic containers. Cold-brew coffee comes in a cute glass bottle at the convenience store, and organic sausages at least have a brown cardboard sleeve around their polypropylene tray.

In fact, the opposite is the case. Rigid plastic containers will see the fastest growth in global consumption to 2020, while metal cans and bottles will fall behind, according to a 2016 report by Smithers Pira, a consultancy. Flexible packaging -- the pouches and wrappers used to hold shredded cheese, muesli bars and washed salad -- has been another winner in recent years. To the extent that paper and board continue to thrive, it's largely as online-purchase delivery boxes rather than anything found on grocery shelves.

Attractive Packaging
A takeover of Bemis would make Amcor the world's fourth-biggest packaging company after the big three paper and pulp businesses
Source: Bloomberg

That's the context in which to consider Amcor Ltd.'s potential $4.3 billion takeover of Bemis Co., a Neenah, Wisconsin-based producer of flexible packaging and yogurt pots. Bemis shares rose as much as 17 percent Thursday after Ed Hammond, Dinesh Nair and Kiel Porter of Bloomberg News reported that Amcor was considering a deal

The transaction would extend the Australian company's decades-long move away from metal and glass toward a polymer-based future.

Amcor has been focusing more and more on plastics, starting with the 2000 spinoff of its paper business, through the 2007 sale of a stake in a U.S. metal bottle-cap unit, and up to the 2013 demerger of glass and can distribution division Orora Ltd.

The attractions are straightforward. Plastics are often lighter and tougher than alternatives, so they help to reduce losses from damage or destruction. That's by far the biggest cause of preventable emissions from consumer goods, and one to which the industry pays attention because companies bear the cost of product waste. As a result, their use continues to grow.

Wrapper's Delight
Prices of plastics ingredients have fallen behind those of other packaging raw materials in recent years
Source: Bloomberg
Note: Rebased. Jan. 1, 2013=100. Shows generic first-month futures.

Plastics have also seen less pressure from raw materials costs in recent years, always a threat for a low-margin business like packaging. North American prices for sand, the main ingredient of bottle glass, have been spiking due to demand from the fracking industry, where it's used to help crack open seams in oil-bearing rock. Prices of aluminum and lumber have risen 33 percent and 26 percent respectively over the past year in London and Chicago, while those for plastic ingredients like polyethylene and terephthalic acid are flat or in decline, in line with the petroleum from which they're made.

Even when it comes to recycling, plastics perform much better than is commonly recognized -- though less so in the case of companies like Bemis, whose "flexibles" are less easily recycled than more rigid products. In the U.S., recycling rates for the most common types of plastic bottles are only marginally worse than they are for glass, although steel and aluminum cans do far better and nearly 90 percent of corrugated boxes are recovered. 

Bottle Rocket
Common types of plastic bottles are recycled in the U.S. at about the same rate as glass
Source: U.S. Environmental Protection Agency
Note: Shows percentage of waste recycled or composted. Does not include waste sent to landfill or incinerated for power generation.

By integrating Bemis, Amcor would be able to increase its exposure to the Americas from around a third of revenue at present to more than half. At the same time, it would leapfrog Ball Corp., the can-maker, to become the fourth-biggest packaging business globally after the big three paper and pulp companies International Paper Co., WestRock Co. and Oji Holdings Corp.

While Amcor shares fell as much as 2 percent in Sydney on Friday, a deal for Bemis would have plenty of strategic merit. Should the company choose to put a takeover to its shareholders set off with the attractive wrapping of a well-argued investor presentation, it may be able to encourage an impulse buy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net