BWAY Goes Private in a $915 Million Deal

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With a history that goes back more than 100 years, container maker BWAY (BWY) certainly knows how to deal with tough times. For the past 18 months, it has taken smart initiatives to reduce costs and rationalize its manufacturing operations. All in all, the efforts have turned out quite well.

However, BWAY's shareholders may not get the full benefit. The company has announced it will go private in a $915 million transaction (which includes the assumption of debt). The private-equity sponsor is Madison Dearborn Partners, and Bank of America (BAC) and Deutsche Bank Securities (DB) have committed debt financing for the deal.

The move is also a win for private-equity firm Kelso & Co, which took BWAY public in 2007 and raised $150 million.

Sustained Streamlining

BWAY has two main businesses. One is metal packaging, which includes containers for paint cans, aerosol cans and so on. In the fourth quarter, sales increased 9.3%, to $143.1 million, and gross margins improved from 9.8% to 15.1%.

Next, there's plastic packaging. This includes injection-molded plastic pails, bottles, drums and petroleum products. As for the latest quarter, sales fell 7%, to $75.9 million, but margins grew from 9.6% to 14%.

Distorting these figures somewhat is BWAY's purchase of Central Can in October. Plus, the manufacturer continued to restructure operations. For example, it closed a plant in Ontario, which resulted in a $1.5 million charge.

BWAY still foresees sluggish demand ahead. But ultimately the company should benefit as the economy continues to improve, especially given its streamlined operations.

Bid May Rise

The full-year guidance is for earnings per share of $1.42 to $1.60, up from $1.32 in the prior year. Adjusted EBITDA is forecasted at $138 million to $142 million. This compares well to the prior result of $125 million. BWAY definitely has the makings of a private-equity transaction.

Yet, the price tag may be too low. BWAY's stock is trading around the buyout price of $20, indicating that the bid may ultimately increase. Indeed, as is common with management-led buyouts, securities lawyers are already considering lawsuits. Probing whether the buyout price is fair, Robbins Umeda LLP has started an investigation into the BWAY board's possible breaches of fiduciary duties.
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