Amcor- It’s Australian For Spin

We admit that our knowledge of Australia is limited beyond knowing that it has immense strategic value in RISK.  Given that, it’s not surprising that we had never heard of Amcor(AMC.AX,AMCRY), which turns out to be the worlds largest packaging company with a market capitalization exceeding $11 Billion. Until we heard today that it plans to spin off its Australian canning, bottling and carton business, the Australasia and Packaging Distribution unit or AAPD. The spin off, or demerger as they tend to be called everywhere but the United States, will create a new company with nearly $2.5 Billion in annual revenue. Bloomberg reports that shares reached their highest level in over 40 years on the news. Amcor hopes to list the new company in December.

The Wall Street Journal reports that Australia demerger activity is up

After the demerger, Amcor will have packaging plants in more than 40 countries spread across the globe and focus more on hard plastics or flexible materials used to package goods. In contrast, the regional business mainly produces fiber, glass and beverage can packaging. The distribution business operates in five countries including the U.S.

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Amcor’s decision adds to a wave of demerger activity in Australia as companies say that the sum of separate parts of their business will be valued more highly by investors if they are freed to operate independently. Global logistics company Brambles Ltd. last month said it would spin off its Recall document-management business after failing to sell the unit last year during Europe’s debt crisis.

“Demergers have traditionally created value for shareholders. Companies end up becoming more focused and employees feel like they have more control and oversight of a smaller business,” said SG Hiscock’s Mr. Tucker.

Anyone familiar with the Australian market interested in weighing in? Join the comments or send us feedback.

Disclosure: The author owns no shares of any stock mentioned. Unlike Alexander, he is not, and I mean it, he is not, moving to Australia.

 

Related articles

• Amcor to demerge Australasia business (news.theage.com.au)
• Analysts React to Amcor’s Demerger Plan (blogs.wsj.com)
• Amcor acquires Chinese business (news.smh.com.au)
• Amcor mill site sells for $120 million (theage.com.au)