Hart's Reynolds Group sees asset sale decision by year-end

Reynolds Group expects to make a final decision on whether to carve out three of its units by the end of the year.

Reynolds Group Holdings, the global packaging empire built up by New Zealand billionaire Graeme Hart, expects to make a final decision on whether to carve out three of its units by the end of the year.

The packaging group embarked on a strategic review of its Evergreen, Closures and SIG units earlier this year, in what could generate as much as US$9 billion from asset sales, according to media reports. Chief executive Tom Degnan last week told investors on a conference call that no decision has been made on the outcome of the review, but that it should be clearer by the end of the year.

"None of the three reviews have reached a stage where we can make a decision," Degnan said. "By the time we’re speaking, or earlier than that, at the end of the year on this call we should have announced, or we will be talking about, where we’re going with this thing."

In August, Degnan scotched a report the potential asset sales were a precursor to an initial public offering, though he was reluctant to give the reasons behind the review saying it wouldn't be in the company's best interests.

In its September quarterly earnings report, published last week, Reynolds said the review of the Evergreen and Closures units was to look at the "possible reallocation of capital and resources" of its portfolio, while the SIG review came from the company receiving an offer to buy the unit.

Reynolds spent US$11 million on the strategic review in the quarter, and Hart's Rank Group charged a US$39 million management fee to the packaging firm in June, a month before the review was publicly announced.

Chief financial officer Allen Hugli said it was too early to speculate what any of the funds raised would be used for, if Reynolds decided to sell any of its assets.

The packaging group reported a net loss of US$224 million in the nine months ended Sept. 30, compared to a loss of US$78 million in the same period a year earlier. Revenue slipped 1 percent to US$10.37 billion, and its adjusted earnings before interest, tax, depreciation and amortisation were down 3 percent to US$1.87 billion.

Reynolds had total debt of US$18.07 billion as at Sept. 30, about 6.3 times adjusted earnings. Hart has tasked management with reducing that multiple to 5.5 times by the end of the year.

The company spent 1.7 billion euros on SIG in 2007, acquiring the equity for the Closures segment for US$708 million from an entity owned by Hart in 2009, according to filings to the SEC. The Evergreen unit was formed from a series of purchases from entities owned by Hart for a total purchase price of US$1.6 billion in 2010.

The three units accounted for 39 percent of Reynolds' adjusted earnings in the nine-month period. SIG reported adjusted Ebitda of US$396 million on sales of US$1.61 billion in the period, while Evergreen contributed earnings of US$203 million on revenue of US$1.19 billion and Closures had US$140 million of Ebitda on sales of US$863 million.

Hart began building the packaging empire in 2006 with the takeover of Carter Holt Harvey, going on to buy International Paper's beverage packing unit and Swiss company SIG the following year, and adding Alcoa's packaging business in 2008. He then ramped up the expansion in 2010, spending US$6.5 billion on the leveraged buyout of Pactiv and then the US$4.5 billion acquisition of Graham Packaging in 2011.