Mumbai: Blackstone Group Lp, one of the world’s largest private equity firms, has agreed to buy a majority stake in speciality packaging company Essel Propack Ltd for about $310 million. The New York-based PE firm has signed a definitive agreement with Essel Propack’s promoter, Ashok Goel, to buy a 51% stake at ₹134 a share.
Goel, who holds about 57% stake in the company through the Ashok Goel Trust and affiliates, will retain a minority stake post the transaction.
The Blackstone-Propack deal will trigger a mandatory open offer, according to takeover norms of the Securities and Exchange Board of India (Sebi), requiring Blackstone to purchase an additional 26% stake in Essel Propack. The PE firm has offered to buy the 26% stake at ₹139.19 a share.
Depending on the response to the open offer, Blackstone will be spending between ₹2,157 crore and ₹3,211 crore ($310-$462 million) for the entire acquisition.
On Monday, Essel Propack shares rose 0.91% to ₹132.65 apiece on the BSE. The announcement was made after market hours.
Amit Dixit, senior managing director and head of private equity at Blackstone India, said the firm saw an opportunity to use Essel Propack as a platform to acquire more packaging companies. “The ability for acquisitions (through Essel Propack) is one of the reasons it is a good partnership," said Dixit, adding that the PE firm would look at acquisition opportunities in foreign countries as well.
Essel Propack is the world’s largest producer of laminated plastic tubes used by FMCG and pharmaceutical companies. Mint reported in September that a Essel Propack stake sale has generated interest from various parties, including foreign packaging companies such as Amcor Ltd and Huhtamaki Oyj and PE funds.
Blackstone expected Essel Propack’s future growth to come from companies in beauty, cosmetics and pharmaceutical segments, driven by high consumption growth in emerging markets, said Dixit.
“Essel Propack has decade-long relationships with marque global customers and a track record of product innovation," said Dixit. “The firm is a leader in emerging markets and well-positioned to benefit from consumption growth across categories. This investment follows Blackstone’s long-standing belief and track record in the B2B2C sector."
Goel would don the role of an adviser in Essel Propack for the next five years, he said.
“Our leadership will stay intact, including the senior management and regional heads, because continuity is a very important theme for us," said Goel.
Morgan Stanley was the exclusive financial adviser to Goel.
For the quarter ended 31 December 2018, Essel Propack earned a profit of ₹17.37 crore on revenue of ₹221 crore, marginally rising from a profit of ₹13 crore on revenue of ₹209 crore in the preceding quarter.
Essel Propack, founded in 1982, produces laminated tubes at its 20 manufacturing facilities across 10 countries. It employs more than 3,158 people, producing seven billion tubes annually. Its clientele includes global brands in the oral care, beauty, cosmetics and pharmaceutical industries.
ICICI Direct says in a January report that Essel Propack has been focusing on improving the share of non-oral care category in its revenue.
“Considering higher penetration in the toothpaste category, the oral care market sales has not been growing at a rapid pace. This has resulted in the company’s strategy of shifting focus to non-oral care categories, dominated by toiletries, skin care and shampoo, which use laminated tubes as packing material. The non-oral care tube market is more than 3x in value compared to oral care tube. Hence, the company is aiming to increase revenue contribution from non-oral category from 40.4% in FY17 to 50% in the next three years," the report said.
Emerging markets would be the key driver for oral and non-oral care categories due to lower product penetration, it said, adding that Essel Propack was focusing on emerging markets of Asia, Africa and Latin America to drive revenue from the non-oral care category.