Shares in Orora Ltd (ASX: ORA) have exploded out of the blocks today after announcing the sale of its Australasian Fibre business for $1.72 billion.
Orora is a global packaging business which provides a range of packaging solutions and displays. Its products include glass bottles, aluminium cans, closures & caps, recycled paper, point-of-purchase displays, boxes & cartons, rigid packaging, flexible packaging, bags and sacks. The company operates in seven countries with nearly 7,000 employees. It has 47 manufacturing plants and 23 distribution sites.
Sale Of Fibre Business
Orora has entered into a binding agreement to sell its Australasian Fibre business to Japanese company Nippon Paper for $1.72 billion. The deal will be subject to standard terms such as regulatory approval, but it is fully expected to be completed by early next year.
Orora estimates that the net gain upon the disposal of the business will be approximately $225 million, which will be recognised in the financial accounts as a significant item.
Returning Money To Shareholders
After accounting for taxes, transaction costs and necessary restructuring costs post the sale, Orora expects to receive net cash proceeds of around $1.55 billion and plans to return the majority of the capital to shareholders.
The company didn’t specify how money will be returned to shareholders. Instead it said it would be via capital management initiatives.
I think it is likely to involve a significant one-off special dividend but may also include a buyback of company shares.
Commenting on the sale, Orora Chairman Chris Roberts said, “The Nippon Paper offer represents compelling value for shareholders, reflecting a full price for the Australasian Fibre business which has reached maturity under Orora ownership.”
Mr Roberts went on to add, “Orora will now focus on its Australasian beverage and North American businesses which both have a strong long term growth outlook and provide opportunity for superior returns on capital for shareholders.”
Market Reaction
Shares in Orora opened 18% higher at $3.22 this morning with investors clearly impressed by the sale.
Orora had been sitting down near its 52-week low before the announcement this morning. The jump will come as a welcome relief for longer term shareholders.
It will be an interesting stock to watch throughout the day as investors take in all the information from the sale.
Would I Buy Shares Orora Now?
Orora has never been a business that has made it on to my hit list of shares to buy because I prefer companies that can deliver a superior return on equity and have better prospects for growth.
Having said that, Orora is a relatively stable and mature business that pays a fairly reliable dividend which would appeal to many investors, especially in the current low interest rate environment.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
