RPC (RPC) shareholders are split over Apollo Global Management’s £3.3bn bid for the plastic packaging specialist, with some claiming the offer undervalues the group's prospects.
Eminence Capital and Canyon, two of RPC’s biggest shareholders, have backed the deal, according to a statement by RPC. Eminence and Canyon Capital have stakes of around 7.6 per cent and 7 per cent, respectively.
However, David Cumming, chief investment officer for equities at Aviva Investors, which holds a stake just shy of 2 per cent, rejected the RPC board’s justifications for the deal.
“The exit valuation clearly underestimates future growth prospects that will now accrue to the buyer and the RPC management team,” he said, adding the view that “this protracted bid process has not delivered fair value to RPC’s shareholders.” Craig Yeaman, senior fund manager at Royal London Asset Management, agreed that the bid undervalued RPC’s potential.
Mr Yeaman speculated that another suitor could enter the fray. “While it is unlikely another bidder will emerge, it should not be discounted out of hand given the low valuation of the agreed bid,” he said. RLAM holds a circa 1.44 per cent stake in RPC, which currently equates to £45m. Standard Life Aberdeen, RPC’s biggest shareholder with 10 per cent of the company, declined to comment.
On the announcement of the deal, RPC chairman Jamie Pike commented that the bid “recognises the quality of RPC's businesses and the strength of their future prospects”. He appeared to take a swipe at some investors, who have previously questioned the company’s enthusiasm for acquisitions. Mr Pike said that the deal represented the culmination, and resolution, of “differing investor views on the appropriate level of gearing”, which had been “constraining the group's ability to pursue opportunities for growth and, as such, putting pressure on RPC's valuation”. The company has been criticised in some quarters for gearing levels that have fuelled acquisitions. Its ratio of net debt to adjusted cash profits is not unreasonably large, standing at two times as of 30 September. However, analysts at Northern Trust Capital Markets, who have been particularly vociferous in their disapproval, have argued that RPC’s acquisitions have effectively masked underwhelming free cash flows (FCF) and capital returns.
Apollo has been alone in the race for RPC since 3 December, after Bain Capital dropped out of the running. The private equity group has been afforded ample time to table a bid, with deadline extensions granted by RPC on five occasions. On 23 January, it was announced that it would be offering shareholders 782p in cash per share, along with RPC’s previously declared half-year dividend of 8.1p per share.
Exane BNP Paribas' Justin Jordan, who penned a note describing the deal as a "potential happy end to a long and painful saga", highlighted rising investors concerns over the global push towards sustainability and its impact on a consolidating sector that has made significant use of plastics. Compared with RPC's share price of £10 in January 2017, Jordan said that the deal "wouldn’t have succeeded two years ago, but today, given investor concerns, it may well succeed".
Last year was rich with consolidation attempts within the paper and packaging sector. On 22 January, DS Smith (SMDS) acquired Spanish rival Europac for €1.7bn (£1.5bn). Smurfit Kappa (SKG), meanwhile, was subject to interest from US paper company International Paper. In March, it declared that IP had undervalued the business, with the US group walking away from talks in June.
