Graphic Packaging to Snap up AR Packaging for $1.45B; Shares Fall

Graphic Packaging (GPK) has agreed to acquire AR Packaging from CVC Funds in an all-cash deal worth $1.45 billion. Following the announcement, shares of the consumer packaging company declined 2.4% in Friday’s extended trading session after closing 1.7% lower on the day.

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The deal is expected to close within four to six months, subject to regulatory approvals and other customary closing conditions.

AR Packaging is the second-largest producer of fiber-based consumer packaging in Europe.

The deal will complement Graphic Packaging’s packaging portfolio and increase its foothold in the European market. Moreover, the purchase is expected to solidify Graphic Packaging’s position in the global market and expand scale in the growing fiber-based consumer packaging markets.

Furthermore, the proposed deal is expected to be accretive to the company’s financials. It will likely add $1.1 billion to annual sales and $160 million to annual adjusted EBITDA. Notably, total synergies of $40 million are anticipated over three years upon closure of the deal. The deal will be immediately accretive to Graphic Packaging’s earnings per share and cash flow, the company said.

Graphic Packaging’s CFO Stephen Scherger said, “The acquisition of AR Packaging expands our opportunities to serve and grow in markets around the world with our sustainable packaging solutions. The combination, together with our previously announced acquisition of Americraft Carton, supports our growth goals and positions Graphic Packaging to consistently deliver organic sales growth at the high end of our 100 to 200 basis points goal as outlined in Vision 2025. The significant cash flow generation capability of the combination will drive strong returns and is expected to return Graphic Packaging to our long-term 2.5-3.0x target leverage range within 24 months following close.” (See Graphic Packaging stock analysis on TipRanks)

On April 9, Goldman Sachs analyst Adam Samuelson initiated coverage of the stock with a Buy rating and a price target of $22 (15.4% upside potential).

Samuelson views the company as a “unique low-cost producer” in a consolidated domestic industry. The analyst believes that the company’s differentiated strategy to control processes, reduce costs and improve efficiencies, provides “significant scope” to expand margins in the long term.

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 7 Buys versus 5 Holds. The average analyst price target of $21 implies 10.1% upside potential to current levels. Shares have increased 24.1% over the past six months.

TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Graphic Packaging is currently Neutral, as 3 hedge funds decreased their cumulative holdings of the stock by 3.2 million shares in the last quarter.