In morning trade the Orora Ltd (ASX: ORA) share price has burst higher after announcing the sale of one of its businesses.
At the time of writing the packaging company’s shares are up a massive 20% to $3.22.
What has Orora announced?
This morning Orora announced that it has entered into a binding agreement to sell its Australasian Fibre Business to a wholly owned subsidiary of Nippon Paper Industries.
According to the release, Nippon Paper Industries made an offer which valued the business at enterprise value of $1,720 million. This equates to an EV/FY 2019 adjusted EBITDA multiple of ~11.5 and an EV/adjusted EBIT multiple of ~18.9. Which is higher than Orora’s current trading multiples.
Management believes this fully values the Australasian Fibre Business, especially based on its outlook for the business.
The deal remains subject to customary conditions for a transaction of this nature, including regulatory approvals. As such, completion is not expected to occur until early in 2020. The estimated net gain after costs and tax is ~$225 million, which will be recognised as a significant item.
What will Orora do with these funds?
Management advised that it expects to receive net cash proceeds from the transaction, after taxes, transaction costs, restructuring costs and customary closing adjustments of $1,550 million.
It intends to return around ~$1,200 million of this to shareholders through capital management initiatives. Though, the company has not yet decided which will be the most efficient method. I suspect it could be a combination of share buybacks and dividends.
Orora Chairman Chris Roberts said: “The Nippon Paper offer represents compelling value for shareholders, reflecting a full price for the Australasian Fibre Business which has reached maturity under Orora ownership and which will now benefit from the synergies and other value enhancements available to Nippon Paper as a strategic acquirer.”
“Orora will now focus on its Australasian Beverage and North American businesses which both have a strong long term growth outlook and provide opportunity for superior returns on capital for shareholders,” he added.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.