Amcor acquires Berry Global: profiting from a 5.5% low-risk trade
Amcor has announced its acquisition of Berry Global in a $4.3 billion all-stock merger, with Berry shareholders receiving 7.25 Amcor shares for each share held. J.P. Morgan analysts have reinstated coverage of Berry with an Overweight rating, projecting a 5.5% upside potential. The merger is expected to generate significant synergies, with $200 million in annualized savings anticipated. Despite mixed analyst opinions, the deal is seen as strategically beneficial for Amcor, enhancing its market position in the packaging industry. Berry's strong Q4 performance and focus on debt reduction further support the merger's outlook.
J.P. Morgan analysts reinstated coverage of Berry Global Group (NYSE: BERY) with an Overweight rating and set a price target of $76 on it today, emphasizing the compelling value of the announced merger with Amcor PLC (NYSE: AMCR).
Analyst Jeffrey Zekauskas noted that Berry’s current price of nearly $72 implies an upside potential of approximately 5.5%.
Berry is currently trading at its all-time high.
Source: TradingView
Factoring in anticipated dividend payouts of $0.93 before the deal’s expected closure by mid-2025, investors could achieve a total return of 8.5%, or about 15% annualized.
Zekauskas highlighted the synergies expected from the merger and maintained a favorable outlook for Berry’s shareholders.
Other analysts shared mixed views on the deal. Barclays’ Michael Leithead suggested that although the 10% premium may appear modest, the strategic synergies make the deal attractive.
With no competing offers likely and a challenging path to standalone growth, Berry shareholders are expected to approve the transaction.
Meanwhile, Jefferies analysts voiced concerns about the absence of a cash component in the deal and noted potential delays in regulatory approvals due to overlaps in packaging operations.
Key terms of the Amcor-Berry merger
Announced on November 19, the $8.4 billion all-stock merger will result in Berry shareholders receiving 7.25 Amcor shares for each share they hold, granting them a 37% equity stake in the combined company.
The deal comes shortly after Berry’s spin-off of its Health, Hygiene, and Specialties Global Nonwovens and Films Business (HHNF) and its merger with Glatfelter Corporation.
The combined entity, projected to achieve $4.3 billion in EBITDA post-synergies, will operate 400 facilities globally, serving customers across 140 countries.
Management anticipates $650 million in annualized synergies, 40% of which will be realized within the first year, primarily through procurement and operational efficiencies.
While these projections appear optimistic, analysts caution that actual synergies may take longer to materialize.
Berry’s strong Q4 performance and outlook
Berry Global’s Q4 FY2024 earnings exceeded expectations, with non-GAAP EPS of $2.27, beating estimates by $0.02, and revenue of $3.17 billion, a 2.6% year-over-year increase.
Organic volume growth of 2%, driven by pricing improvements, offset declining volumes.
For FY2024, Berry reported adjusted EPS of $7.62 and free cash flow of $600-$700 million, meeting its guidance.
Looking ahead, Berry forecasts FY2025 adjusted EPS of $6.10-$6.60, operating cash flow of $1.125-$1.225 billion, and sustained low-single-digit volume growth.
CEO Kevin Kwilinski emphasized the company’s lean transformation initiatives and focus on enhancing margins, reducing debt, and returning capital to shareholders.
Fundamental and valuation analysis of Berry Global
Berry’s fundamentals remain robust, bolstered by its leadership position in sustainable packaging solutions.
The company has achieved 12 consecutive years of adjusted EPS growth and continues to prioritize debt reduction, having reached a leverage target of 3.5x—its lowest in history.
However, Berry’s valuation at 9x EV/EBITDA remains competitive yet lower than Amcor’s, highlighting the potential for further upside upon successful integration.
The merger is expected to create a dominant global player in the packaging industry, with half of its revenue derived from North America and significant exposure to growth markets in Western Europe and emerging regions.
While analysts recognize Berry’s attractive valuation and synergies, concerns about the fair distribution of benefits between Amcor and Berry shareholders persist, given Berry’s stronger standalone metrics.
Strategic Implications of the deal
The deal aligns with Amcor’s strategy to expand its market dominance and operational efficiencies.
However, the fixed exchange ratio and valuation disparities favor Amcor, with Berry’s shareholders receiving a lower stake relative to their contribution to the combined entity’s EBITDA and cash flows.
While these concerns merit attention, the merger’s potential to unlock synergies and deliver accretive growth could offset these imbalances in the long term.
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