Indian Firm Reportedly To Buy Alcan Packaging Unit
Ruth David, 09.12.07, 10:12 AM ET
Indian packaging company Essel Propack is in talks to acquire a packaging unit of Canada’s Alcan, according to sources in the know.

Montreal-based Alcan reportedly indicated it wants to sell its packaging unit, as part of a restructuring plan agreed upon when mining giant Rio Tinto (nyse: RTP - news - people ) acquired Alcan in July for about $38 billion.

When contacted, a spokesman for Mumbai-based Essel Propack said he wouldn’t comment on market rumor. With 12 plants globally, the Indian company is the global leader in the production of laminated tubes, with an estimated 32% market share and clients like Procter & Gamble (nyse: PG - news - people ), Unilever (nyse: UN - news - people ) and Colgate (nyse: CL - news - people ). Essel Propack went global only in 2000, by acquiring the tube assets of the Propack Group.

Alcan executives could not be reachedfor comment before the writing of this report.

There is no estimate on the size of the deal, but last year Alcan Packaging had sales of $6 billion. Essel Propack’s global operations had a turnover of $270 million for 2006.

If Essel Propack acquires Alcan Packaging, it will gain access to the company’s businesses in packaging for beverages and food products, pharmaceuticals and cosmetics. Alcan Packaging, with manufacturing bases in 26 countries, boasts of clients like L’Oreal and Revlon (nyse: REV - news - people ).

But Essel Propack, which has a debt-equity ratio of about 1:1, could find the acquisition a strain on its balance sheet. It could look at an open issue as one means of financing, said analysts.

In its last management meeting, the company had outlined a strategy of expanding globally through acquisition, so news of a possible deal with Alcan doesn’t come as a surprise. In 2006, Essel Propack acquired two global packaging companies: U.S. firm Tacpro and Singapore’s Avalon Medical Services.

“How Essel Propack finances such a large acquisition will be key to investors’ responses in the long-term,” said Rajen Shah, chief investment officer at Mumbai-based Angel Broking. “My call on the stock remains positive; the promoters are aggressive on growth; and the FMCG [fast-moving consumer goods] business that they provide packaging for is likely to grow at a strong pace for the next few years,” Shah said.

Investors’ initial response to news of the deal was positive. Essel Propack’s shares gained 6.6% on the Bombay Stock Exchange, closing at 66.60 rupees ($1.64).
http://www.forbes.com/markets/2007/09/12/essel-propack-alcan-markets-equity-cx_rd_0912markets03.html