RBC Capital Markets Upgrades Bemis Co. On Amcor's $6.8B Bid

Australian packaging company Amcor announced a bid Aug. 6 for Bemis Company, Inc. BMS in an all-stock deal worth $6.8 billion.

The Analyst

RBC Capital Markets' Arun Viswanathan upgraded Bemis Co. from Underperform to Sector Perform and increased the price target from $44 to $54.

The Thesis

"Complementarity between BMS and Amcor is high and allows for significant ($180 million) synergies", Viswanathan said in the upgrade note. (See his track record here.) 

Around 40 percent of synergies in the merger will come from procurement savings, while G&A expenses and operations will account for 40 percent and 20 percent, respectively, the analyst said.

The combined packaging company will have around $13 billion in annual revenue, $2.5 billion EBITDA, free cash flow of more than $1 billion and a market cap of more than $17 billion, Viswanathan said. 

RBC expects both parties to approve the acquisition and projects that Bemis will find support until the expected close in the first quarter of 2019. The merger could have broader implications on the packaging industry, as the 11.7x pre-synergy multiple is higher than the sector average of 8.5x and the average of 10x for other deals, the analyst said. 

Viswanathan recommends Berry Global Group Inc BERY and Graphic Packaging Holding Company GPK, which trade at 8.2x 2018 EBITDA and 7.5x 2018 EBITDA, respectively, as buys in the sector. 

The Price Action

Bemis shares were down 0.4 percent at $49.30 at the close Wednesday. 

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