Transcontinental to diminish printing role with $1.3B packaging deal

By Ross Marowits   

Industry Manufacturing manufacturing packaging printing Transcontinental

$1.32 billion purchase of Coveris Americas makes it North America's seventh-largest packaging company.

MONTREAL — Transcontinental Inc. is taking a big leap in its strategic shift towards flexible packaging with the company’s largest ever deal that would diminish the role of commercial printing that has been the cornerstone of the company since its founding 42 years ago.

The US$1.32 billion purchase of Coveris Americas will make it North America’s seventh-largest packaging company.

The deal announced after a lengthy auction process complements and bolsters Transcontinental’s product offering particularly in dairy, pet food and consumer products and adds agriculture, beverage and protein, said Francois Olivier, chief executive officer of TC Transcontinental.

“We will diversify our packaging capabilities and product offerings, which will enable us to increase our share-of-wallet with our existing customers,” he said during a conference call.


Olivier said its customer base will broaden and include some large, market-leading customers.

He said that the cash deal, worth C$1.72 billion, will build on the two companies’ combined strengths.

Transcontinental estimated it can achieve US$20 million of cost-savings over a 24-month period, including half in the first year.

As of the end of 2017, Chicago-based Coveris Americas employed more than 3,100 people at 21 production facilities worldwide, including 14 in the US and one that employs 140 in Whitby, Ont. The rest are in Ecuador, Guatemala, Mexico, the United Kingdom, New Zealand and China.

Olivier said there could be an opportunity to import into the US some Coveris technology used in South America that has active ingredients in the plastics primarily for growers to protect their crops.

Transcontinental employs more than 1,000 people at seven packaging facilities, including one announced last month and two in Canada that employ 180.

Coveris generated US$966 million in revenue last year and US$128 million in adjusted earnings before taxes and other expenses (EBITDA).

“This transaction crystallizes our strategic shift toward flexible packaging and solidifies our commitment to profitable growth,” Isabelle Marcoux, chairwoman of Transcontinental’s board, said in a statement.

The Coveris deal is subject to applicable anti-trust approvals and is expected to be completed by July.

Drew McReynolds of RBC Dominion Securities says the deal moves the needle on Transcontinental’s packaging exposure.

“We believe this transaction is entirely consistent with the company’s transformation from printing to packaging, as well as the desire to consummate a larger acquisition,” he wrote in a report.

Transcontinental shares gained about 8% at C$27.50 in morning trading on the Toronto Stock Exchange.

The Montreal-based company is buying the flexible packaging business from Coveris Holdings SA, a multinational manufacturing company that will continue to have manufacturing plants in 14 countries and more than 8,000 employees.

With the transaction, 48% of Transcontinental’s $3.3 billion in revenues in 2017 and 3% of its $564 million in adjusted EBITDA would have been from packaging.

That’s up from 15% of revenues and 11 per cent of adjusted EBITDA for Transcontinental’s packaging operations last year.

Printing would have accounted for 45% of pro-forma revenues and 59% of profits while media would have accounted for seven per cent of revenues and four per cent of EBITDA.

The transaction comes about one month after Olivier signalled Transcontinental was ready to spend more than $1 billion on a transformational transaction.

Olivier said the company will take a breather from more acquisitions and buying back its own shares while it integrates the operations and reduces its debt load by 2020.

He sees Transcontinental growing Coveris’ business, which had been hurt by the challenges of spending US$140 million of capital spending on new equipment over three years.

“We think we’re buying this asset at the right time and with the combined teams…we’re going to have a stronger story in the marketplace and I think we could put the Coveris Americas assets back onto the growth rate,” Olivier told analysts.

After moving into the top 10 packaging converters from 22nd spot, Transcontinental expects to be part of the industry’s consolidation long-term.



Stories continue below

Print this page

Related Stories