A year ago, Paul Coulson finally seemed to have lost his nerve as he dropped out of the running for a €3 billion bottle-making business being sold by French building materials group Saint-Gobain.
One of Ireland's most voracious dealmakers surprised bond analysts when he signalled on a call that he was not prepared to compete on the same terms as private equity firms circling the deal. After a decade and a half building Ardagh Group by acquisition into one of the world's largest makers of glass bottles and tin cans, Coulson said he was unlikely to buy anything again "in the near term".
His self-restraint didn’t last long.
On Monday, days before his 64th birthday – normally a time to start planning a retirement cruise or a revamp of the back garden – Coulson unveiled his biggest purchase yet: a $3.4 billion (€3 billion) deal.
It springboards Ardagh into the business of making cans for beers and fizzy drinks, as the third-largest player in the world. The deal will be funded the favoured Coulson way. With debt. And lots of it.
Purchasing the assets from US packaging group Ball Corp and UK peer Rexam will boost Ardagh's annual sales by a third to within reach of €8 billion and deliver €1.3 billion of operating earnings.
It will also see Ardagh’s total debt load mushroom to a record €7.7 billion, leaving it firmly in the ranks of “junk” status among ratings agencies – and possibly on a collision course with bondholders who have backed Coulson every time he turned to them to help fund his latest purchase.
“Raising leverage could lead to elevated refinancing risk down the road if market conditions deteriorate in the future,” said Arjun Chandar, an analyst with JPMorgan in New York.
For now, it appears the businessman has gotten his timing spot on.
Ball and Rexam were forced sellers of the assets, under the orders of competition authorities, ahead of their planned merger this summer. Analysts say the Irish group got the business at a price well below the level comparable companies are trading on the public markets.
Back on the phone with bondholders on Monday, Coulson suggested he was able to beat private equity firms that were also circling the business, as he can strip out €50 million of savings within two years by integrating it with his wider metals business.
Secondly, junk bonds are all the rage again. Investor appetite for riskier debt carrying high interest rates – or “high yield” bonds – has recovered dramatically since mid-February. This follows a panicked sell-off earlier in the year when investors were fretting about the world economy and oil prices.
Coulson unleashed a $2.85 billion bond offering during the week to fund the purchase. He has said that this would lift Ardagh’s total debt burden to six times operating earnings – a high level by any standards – at the end of this year from five at the end of March. Still, ratings agency Moody’s used the news to upgrade Ardagh’s credit rating saying the Ball-Rexam deal gives it “significant scale and market position” in the US and Europe and that its cash flow will improve “strongly” as a result. Moody’s still rates the company’s bonds below investment grade.
Ardagh has promised that it plans to bring leverage down over the next few years as the deal boosted profits and he, finally, takes in outside equity. He’s been down this road before. Having initially flagged an initial public offering of the business back in 2011, Coulson got close to floating the group’s metals business at the end of last year, only to pull it as equity markets turned volatile.
The dealmaker has now revived a plan to bring in outside equity, either from private investors or in the public markets. For the moment, at least, a private deal is more likely, as global markets for IPOs have cooled significantly since last year.
Private equity firms, which typically target short-term investments, need not approach, Coulson said this week.
“This is a very long term asset for us,” he said, adding that the company is looking to raise money “largely from people who are looking for very long-term holdings who want to grow with us, grow their investment with us in the next stage of our journey.”
This could put sovereign wealth and pension funds in the frame.
For Jayanth Kandalam, a senior credit analyst with Lucror Analytics in Singapore, a deal can’t come quickly enough.
“But, to be reasonable, it would be unlikely to occur this year, considering that the deal may close only at or post mid-year,” said Kandalam.
Ardagh’s increasing reliance over the past six years on the bond markets to finance Coulson’s purchases is in stark contrast with Ireland’s banks, small businesses and households, all of which have been focusing on paying down debt after a decade-long credit binge that fuelled a property bubble and ended in tears.
“I think, so far, they have done a commendable job” at Ardagh, according to Kandalam. “They grew when they found the opportunities and deleveraged at other times.”
‘The Cooler’
Known to friends as "The Cooler" since his university days – when he was a keen hockey, squash and tennis player – Coulson cut his teeth in the world of commerce by restructuring the finances of the Trinity Ball in the early 1970s.
The Dubliner started his career as an accountant with Craig Gardner (now part of PricewaterhouseCoopers) in London.
In 1982, he set up Yeoman International, an aircraft leasing and investment firm, where he executed a deal six years later that he would rue. After Yeoman International forked out £93 million sterling for CLF Holdings, a British leasing company to small businesses, it quickly became apparent that it had bought a dud. Bad debts in a unit of the company soared as the UK economy soured.
Coulson turned on his advisers on the deal, merchant bank SG Warburg. And, despite warnings at the time that he would not win taking on the City of London establishment, he sued the bank, winning an out-of-court settlement of £35 million.
“It was a gutsy move that most other people wouldn’t have even tried at the time,” according to a former acquaintance. “But had he not taken it, it could have been his undoing.”
Soon after, the Irish Glass Bottle Company, which traced its roots to 1932, was in his sights.
He bought an initial stake and took over as chairman in 1998. Within a year, he started off on a road to transform the sleepy company – by then renamed Ardagh Plc – with a single glass plant in Dublin and its two furnaces through the acquisition of Rockware, then Britain’s largest glass bottle maker, for £247 million.
In targeting a business more than six times the size of Ardagh by value, Coulson set the funding template for what would underpin billions of euro of subsequent deals: leverage.
Some 375 workers at his Irish Glass Bottle plant became all too familiar with his other key business trait – cool-headed determination – when he called time in 2002 on the facility in Ringsend after a 17-week strike. They all lost their jobs.
The following year, the financier engineered a deal that would split the group in two. Ardagh Glass, a company he subsequently used to build his €7.8 billion glass and tin containers empire, was taken private, while another company, South Wharf, was set up essentially to house its legacy asset, the leasehold on the 24-acre glass bottle site in Dublin.
South Wharf and its 1,300 shareholders went on to share two-thirds of the €411 million proceeds from the sale of the site as the property boom neared its peak, in 2006 (see panel).
So, what of the Ardagh Glass shareholders who refused to sell out when Coulson was buying it off the market?
Understood to count in their hundreds, these small shareholders own about 18 per cent of Ardagh. They’ve benefitted from a surge in the value of the group and its occasional repurchase of shares over the years.
In the past five years, Ardagh has bought back about €270 million of shares, funded largely by the sale of one of the riskiest and most costly types of debt, known as payment in kind notes, where interest payments roll up.
Big pay day
But the real payday for patient small investors, and for Coulson, who owns 36 per cent of the company, could be in the offing if Ardagh finally floats again on the stock market, giving them tradable shares once more, albeit in a very different company.
The company, which had €21 million of capital back in 2005, may have an equity value of as much as €5.3 billion after the Ball-Rexam deal. That’s based on a similar calculation to Ball’s bid for Rexam last year, which priced the target at 10 times earnings before interest, tax, depreciation and amortisation.
That would put the small Ardagh shareholders’ stake at about €950 million and that of Coulson, who turned 64 yesterday, at €1.9 billion.
"Coulson's ability to manage an increasingly global business through different economic cycles while maintaining a debt-laden balance sheet, all the while tapping debt markets, is something that few individuals have been able to do over an extended time period," according to David Holohan, chief investment officer at Merrion Capital in Dublin.
He’ll be hoping the junk bond market will remain his friend until Ardagh gets to sell shares.
Ardagh timeline From glass bottle factory in Dublin to €7.8bn giant
1932 : Irish Glass Bottle Company is set up in Ringsend by Joe McGrath, Richard Duggan and Spencer Freeman who had made their fortunes with Irish Hospitals Sweepstakes
1998: Paul Coulson’s Yeoman invests in the company and he takes over as chairman, renaming it Ardagh Plc
1999: Ardagh Plc executes its first deal, buying UK glass bottle company Rockware Glass for £247 million (€318 million)
2002: Ardagh Plc closes glass bottle plant in Dublin with loss of 375 jobs, acquires Italy-based Consumers Glass for €16.2 million
2003: Ardagh Plc split into Ardagh
Glass, which is taken private, and South Wharf, which remains listed; Ardagh buys German rival Hermann Hey for €35.5 million
2004 : Ardagh acquires Huta Szkla Ujscie for €11 million
2005: Ardagh purchases UK packaging group Rexam’s UK glass business for £50 million
2007: Ardagh takes over Rexam’s European glass unit for €657 million
2010: Ardagh diversifies into metal packaging with €1.7 billion purchase of Netherlands-based Impress Cooperatieve
2011: Ardagh buys Italian metal packaging company FiPar for €130 million
2012: Ardagh snaps up three companies – Franco-Dutch aluminium can maker Boxal and US-based glass businesses Anchor Glass and Leone Industries – for combined $1.2 billion
2014: Ardagh buys French group Saint-Gobain’s Verallia North America glass unit for $1.7 billion
2015: Ardagh plans New York flotation of its metals business, which is subsequently pulled in November
2016: Ardagh strikes biggest deal, to expand into beverage can-making market, through agreed purchase of $3.4 billion of assets from US packaging group Ball and UK rival Rexam
Boomtime deal: Anglo Irish Bank-backed purchase of Irish Glass Bottle site for €412m one of the ‘craziest’
It was one of the biggest deals of the property boom and Paul Coulson wasn’t caught on the wrong side.
After closing the then Ardagh Plc’s Irish Glass Bottle plant in 2002, Coulson split the company in two: Ardagh Glass, which became the group’s international operating company, and South Wharf, a publicly quoted company whose main asset was a long-term leasehold on the Ringsend bottling facility’s 24-acre site.
Coulson went on to become executive chairman of Ardagh and chief executive of South Wharf, in which he remained a major shareholder.
Following a protracted dispute with Dublin Port, freeholder of the site, a settlement was reached whereby South Wharf would take two-thirds of the proceeds from a sale of the site. Dublin Port would be left with the remaining third.
The subsequent purchase of the site by a consortium comprising developer Bernard McNamara (top right), property investor Derek Quinlan (bottom right) and the Dublin Docklands Development Authority (DDDA) for €412 million in 2006 has gone down as one of the craziest boom-time deals.
The site was subsequently seized by receivers appointed by the National Asset Management Agency in 2012. McNamara filed for bankruptcy the same year. Quinlan emigrated.
And the DDDA is currently in the process of being wound down.
And the lender that financed the deal? One Anglo Irish Bank.
Boomtime deal Anglo Irish Bank-backed purchase of Irish Glass Bottle site for €412m one of the ‘craziest’
