Orora Ltd (ASX: ORA) shares are roaring higher on Wednesday.
At the time of writing, the ASX 200 stock is up 10% to $2.75.
This compares favourably to a 1% decline by the ASX 200 index.
Why is this ASX 200 stock outperforming?
This morning, Orora announced that it has entered into a binding agreement to sell Orora Packaging Solutions to Veritiv Corporation for an enterprise value of A$1.775 billion (US$1.2 billion) on a cash and debt-free basis.
The company notes that Veritiv's offer fully values Orora Packaging Solutions and implies approximately 9.9x FY 2024 cash EBITDA. This is a premium to Orora's trading multiple and relevant comparable transactions.
Management expects the transaction to result in net cash proceeds of approximately A$1.687 billion. Subject to the satisfaction of all conditions precedent, completion is expected to occur late calendar year 2024.
Why is it selling the business?
The ASX 200 stock had previously revealed that it was undertaking a strategic review of Orora Packaging Solutions with the objective of unlocking value for shareholders.
Management believes that the sale of the business was the right move following a robust process that spanned many months.
It notes that the sale of Orora Packaging Solutions transforms the company into a focused beverage packaging business, with market-leading positions and a defensive growth profile across beverage substrates and end-markets.
In addition, it leaves Orora with a strong balance sheet, providing flexibility to pursue value accretive organic growth opportunities, including additional Cans expansion projects.
With that in mind, management revealed that it intends to bring forward A$130 million of capital investment to further expand its Cans capacity in Rocklea, Queensland. The Rocklea expansion, in combination with recent and ongoing projects, will increase Cans capacity by more than 30%.
It also intends to distribute surplus proceeds from the transaction to shareholders in a tax efficient manner to deliver a balance sheet consistent with a global beverage packaging business.
However, the form and timing of shareholder distributions will be communicated in due course.
'A new era'
The ASX 200 stock's managing director and CEO, Brian Lowe, was pleased with the deal. He said:
Today's announcement marks a new era for Orora as well as the OPS business as it transitions to Veritiv ownership. Veritiv's interest in acquiring OPS provided us with an opportunity to realise an attractive valuation for shareholders and accelerate our strategy of becoming a specialty value-added beverage packaging player.
This leaves Orora with a strong balance sheet, allowing the company to grow our beverage packaging businesses, including further investment in high returning projects such as the expansion of our Rocklea cans facility in Queensland. The sale is the culmination of a robust process and months of disciplined focus from our team to deliver a compelling outcome for Orora's shareholders.
