Analysis: Ardagh’s performance is in the eye of beholder

Paul Coulson's stake in Ardagh Group, the company he transformed in less than two decades from sleepy Irish glass bottle maker to a global packaging giant, may be worth as much as €1.9 billion as a result of his biggest-ever deal.

Then again, the managing director’s approximate 35 per cent holding could be as low as €560 million.

It all depends on which way you value the company on the basis of the earnings to come from its planned purchase of $3.4 billion (€3 billion) of assets which will make it world’s third largest drinks can maker.

These plants are being sold by US packaging group Ball Corp and UK peer Rexam to satisfy competition authorities ahead of their planned merger in June.

Debt pile

Ball’s bid for Rexam, announced last year, valued the company at 10 times earnings before interest, tax, depreciation and amortisation (Ebitda). On this basis, Ardagh would be worth about €13 billion after taking over the Ball-Rexam assets being sold. That’s including its expected €7.5 billion debt pile after the deal.

However, Ardagh’s own deal yesterday valued the plants it is taking over at seven times Ebitda. While analysts say Coulson got a good deal here, below where similar assets are trading on public markets, applying the same valuation to Ardagh as a whole would only yield €9.1 billion. Subtracting the company’s post-deal debt and you’re left with equity worth €1.6 billion. That compares with €5.5 billion, based on the higher multiple.

Coulson, no doubt, is more taken by the higher value after telling bond analysts yesterday he has reignited plans to raise equity for the business. He said the company may tap either private investors or the public markets. The former is most likely, initially at least, given that global appetite for initial public offerings has slumped in the past six months.

‘Challenging’ conditions

Ardagh itself fell victim to the slowdown itself last year, being forced to pull a flotation of its metals division, citing “challenging” market conditions.

With the Bell-Rexam assets set to boost revenues at Ardagh’s metals divisions to 60 per cent of the group’s total, Coulson has now backed away entirely from just selling shares in that unit.

Ardagh’s debt-holders will be relieved at the company’s commitment to bringing in equity.

The market rate, or yield, on its €1.15 billion of bonds due to be repaid in 2022 jumped to 4.3 per cent from 3.8 per cent after the group announced the deal and plans to fund it purely with debt and existing cash balances.

The yield eased back to 4.07 per cent later in the day. The naming of Ian Curley as its next chief executive, effective in September, will also comfort many. After all, Curley's an old hand at handling both equity and nervous high-yield bond investors after 16 years as finance chief at Smurfit Kappa.