Graeme Hart reviews ownership of Evergreen, Closures, SIG

Graeme Hart. Photo / APN

New Zealand billionaire Graeme Hart's Reynolds Group is considering the sale of three units that make up more than a third of the global packaging empire's earnings.

Reynolds is reviewing ownership of its Evergreen and Closures businesses and is also mulling whether to sell its SIG packaging unit after being approached, it said in a filing to the US Securities and Exchange Commission. Last month reports emerged that Reynolds was looking to sell its SIG unit, which makes carton packaging for drinks and liquid foods, for some US$5 billion.

The review of Evergreen and Closures "is part of a review and possible reallocation of capital and resources within its business portfolio," the company said. "Both reviews may result in a decision to sell some or all of those businesses, although no decision has been made at this time to do so."

Reynolds had negative equity of US$185 million as at March 31, according to its first-quarter report, with total equity reduced by US$1.56 billion "as a result of the group's accounting for the common control acquisitions of the Closures segment and Reynolds consumer products business in 2009 and of the Evergreen segment and Reynolds food-service packaging business in 2010."

Reynolds spent $1.7 billion on SIG in 2007, acquiring the equity for the closures segment for US$708 million from an entity owned by Hart in 2009, according to filings to the SEC. The Evergreen unit was formed from a series purchases from entities owned by Hart for a total purchase price of US$1.6 billion in 2010.

The three units accounted for 35 per cent of Reynolds' US$3.22 billion of sales in the three months ended March 31, and 38 per cent of its adjusted earnings of US$531 million. SIG reported adjusted earnings before interest, tax, depreciation and amortisation of US$111 million on sales of US$499 million in the quarter, while Evergreen contributed earnings of US$51 million on revenue of US$379 million and Closures had US$40 million of Ebitda on sales of US$259 million.

Hart began building the packaging empire in 2006 with the takeover of Carter Holt Harvey, going on to buy International Paper's beverage packing unit and Swiss company SIG the following year, and adding Alcoa's packaging business in 2008. He then ramped up the expansion in 2010, spending US$6.5 billion on the leveraged buyout of Pactiv and then the US$4.5 billion acquisition of Graham Packaging in 2011.

The Reynolds expansion was funded largely through debt, and the packaging group had total debt of US$18.05 billion as at March 31, or 6.3 times Ebitda.

Earlier this year Reynolds chief financial officer Allen Hugli told analysts Hart had tasked management with reducing the amount of leverage the packaging group had taken on, reducing the debt to earnings ratio to 5.3 times.

Last month Reuters reported Hart's Rank Group was looking at selling its US autoparts businesses in a bid to reduce debt. Rank acquired UCI for US$980 million and FRAM Group for US$950 million in 2011.

Earlier this year, Hart sold out of the pulp, paper and packaging businesses of Carter Holt Harvey, although he continues to own the building products arm of CHH.

Hart is worth about $6.4 billion, according to the 2013 NBR Rich List.