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Raphael Geminder Successfully Completes Australian Pact Group IPO And Raises US$584 Million


PACT-GROUP Raphael Geminder

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Just over two weeks ago, on December 3rd, Jewish Business News reported on the launching of an initial public offering (IPO) that had just commenced, by Australian plastic and steel rigid container consumer packaging group the Pact Group.

Led by Raphael Geminder as Chairman, the Pact Group is also controlled by him and is part of the reclusive Australian Pratt family empire, which includes holding company Visy Industries and US packaging company Pratt Industries.

The Pact Group has now reported yesterday it has completed the IPO, successfully selling approximately US$584 million (A$649 million) of common shares, gross, at a price of US$3.42 (A$3.80) per share. This is right on its original target.

After paying underwriting fees and costs of the issue this represents about US$560 million net (A$622.3 million) available to the company.

As Jewish Business News had reported some of these moneys will then actually be funneled back to the controlling shareholder so that net, net, net about US$261 million (A$290.2 million) will flow into the treasury of the company for its own business purposes, including debt reduction.

Even so this is a very successful stock issue. It is also, as the Pact Group points out, both the largest IPO in the Australian market so far in 2013, and apparently also the second largest packaging IPO ever completed anywhere in the world. Impressive.

While there had been some element of risk in pushing forward with such a large offering in still recovering economic conditions, an obviously delighted Raphael Geminder said after the announcement yesterday,

“Pact is pleased with the support we’ve received from investors and the market, making this the largest IPO of the year. Management is energised about transitioning the company from a private company to a publicly listed company and we are 100% focused on delivering our half year numbers to the market next year.”

A total of 170.7 million shares were sold by way of the offering, resulting in a total of 294.1 million shares outstanding afterwards. If the shares trade initially at or around the offer price of US$3.42 (A$3.80) per share the total equity market capitalization of the company will at that point be just over US$1 billion (A$1.12 billion).

Once the dust settles, the business will have net debt still remaining in its balance sheet of about US$543 million (A$603 million). This implies an opening total enterprise value therefore of about US$1.55 billion (A$1.72 billion) – where enterprise value is notionally a company’s outstanding net debt plus its market capitalization at a point in time.

Raphael Geminder will continue to hold about 117 million shares of the company for a 40% personal stake now. He holds the same class of shares as everybody else, all carrying just one vote per share. So, he is putting his control on the line here and is apparently content to live by the results he achieves running the business.

I like that approach, though it is also quite possible some of the institutional or other purchases of the issue may generally be aligned with his interests, but that would be fair ball.

In terms of purchase value of the shares for new entrants now buying into the company, the pro forma numbers are fairly typical and as one would expect. These are actually summarized quite well in the offering prospectus itself – which was very clearly written by the way, and seemingly has an excellent standard of disclosure once you dig deeply into it:

Pact Group Pro forma Key Financial Ratios:

Enterprise value / Pro forma FY2014 EBITDA 8.5 x multiple

Enterprise value / Pro forma FY2014 EBIT 11.5 x multiple

Offer Price / Pro forma FY2014 EPS 13.4 x multiple

EBITDA = earnings before deducting interest, taxes, depreciation and amortization
EBIT = earnings before deducting interest and taxes
EPS = earnings per share

The shares of Pact Group are expected to commence public trading tomorrow, December 19th, 2013 on the Australian Stock Exchange, under the symbol ASX:PGH.

It will be very interesting to see if there is still suppressed demand that will push the shares up at this point, or indeed whether they got it “just right”. After that the business results from the coming year ahead will then validate or refute everyone’s judgments.

Credit Suisse and Macquarie Capital were lead underwriters for the offering.

Raphael Geminder

Rapahel Geminder, who is married to the Pratt Group founder Richard pratt’s daughter Fiona, created and aggressively built up his the Pact Group by numerous local packaging industry acquisitions since 2002, deploying substantial financial leverage to do so along the way. Some of this leverage has now been unwound with the success of the IPO.

Pact today is a very large player in the plastic and steel rigid container consumer segments of the packaging business, with a 40% market share in certain product lines in Australia, New Zealand and on the fringes, so far, of Asia as well.

Asia is very much the next target market for rapid growth for the Pact Group as well it seems, according to the new prospectus. Now he has the money he will need to get the job done, though with some, fairly short term, three year debt maturities still in the Pact Group balance sheet for about half of its debt some attention will need to be paid to this too moving forward.



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