Johannesburg - International packaging and paper group Mondi announced Monday that it wanted to acquire an international packaging business in Russia to add to its earlier acquisition of Turkish company Kalenobel.
Mondi said it had signed an agreement to acquire 100 percent of the outstanding share capital of Russian company, Beepack, from a private investor for a consideration of 41 million euros (R636m) on a debt and cash free basis.
Mondi chief executive David Hathorn said: “The acquisition of Beepack supports the ongoing development of our corrugated packaging business in central and eastern Europe. It enables us to enter a market with strong growth potential while expanding our geographic reach to better serve our customers.”
The transaction remains subject to customary closing conditions and is expected to be completed in the fourth quarter.
“Our focus is on growing the packaging side of our business, including consumer packaging while at the same time investing appropriately in our uncoated fine paper operations,” Mondi's head of communications Lora Rossler said.
Beepack’s plant in Moscow makes a range of corrugated packaging trays and boxes for food and agricultural products including beverages, fruit and vegetables, poultry and dairy. “Customers include local Russian and international producers. The company generated revenues of 2 782 million roubles (R618m) for the year to end December 2015.
At the beginning of June, Mondi also acquired Turkey’s Kalenobel for 90 million euros on a debt and cash free basis to add to its consumer packaging business in Europe.
Ron Klipin, a portfolio manager at Cratos Wealth, said it made sense for Mondi to move into the consumer packaging as there were many opportunities there. Klipin said the company derived high margins on the consumer packing side of the business.
“They have also bought the company on the basis of good returns in the future as Russia doesn’t cost much on wages. Mondi own a lot of timber plantations in the area so it is a good strategy and sound investment for future gains and the price the company is paying for the acquisition is reasonable,” Klipin said.
Adrian Saville, the chief strategist at Citadel, described the acquisition as modest but it was characteristic of companies that tended to be successful in mergers and acquisitions.
Saville said Mondi was doing small, frequent transactions rather than trying to “buy growth”. Mondi has displayed this in recent transactions with Uralplastic and Kalenobel.
“Mondi has distinguished itself by way of its footprint in faster growing, industrialising emerging markets, particularly eastern Europe, giving it access to skills and technology in lower cost geographies. This has translated into a competitive strength in terms of lower cost and higher productivity compared to peers and this transaction reinforces that attribute.”
Saville said Mondi’s strong balance sheet, good cash flow capability and impressive management record augured well for future performance.
“Mondi is likely to strengthen and complement its Russian presence specifically in eastern Europe more. In addition to all of this, Russian economic recovery and that of central and eastern Europe, which stand out as having good growth and developmental prospects, makes for a sensible approach and adds to the attraction of the deal. I expect this to augment group cash return on invested capital, a key metric for the business,” he said.
Mondi shares dropped 0.55 percent on the JSE to close at R287.50.
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