Are troubles in the packaging sector pulling down a $3.2 billion deal for Graham Packaging Holdings Co.?
Since late December, three companies in the industry -- Chesapeake Corp. (Dec. 30), Constar International Inc. (Dec. 30) and Smurfit-Stone Container Corp. (Jan. 26) -- have filed for Chapter 11, victims of some mix of high leverage, limited liquidity, falling sales and rising raw materials costs.
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Graham also has a high debt load of $2.51 billion, including $1.85 billion owed on a term loan and some $625 million in notes. It's enough to give the partners in the York, Pa., plastic container maker a deficit of some $754 million after liabilities are subtracted from assets. And Graham lost $144 million in the year ended Sept. 30.
So perhaps it's not shocking that Graham, majority owner Blackstone Group LP and potential buyer Hicks Acquisition Co. I Inc., announced Jan. 28 they had amended terms of a planned reverse merger that would see Hicks, a special purpose acquisition company, take 68% of Graham's shares. The amendment releases the parties in the deal from an exclusivity provision and gives Hicks and private equity firm Blackstone the right to terminate the agreement by written notice. In addition, the parties said they could give no assurance the reverse merger would close at all.
Sources told The Deal that it appeared market uncertainties and the decline in comparable purchase price multiples had created obstacles for the deal.
Still, there's no reason to think that Graham will follow its fellow packagers into bankruptcy court. Graham's sizable $144 million net loss was caused by $183.3 million in depreciation and amortization; it actually posted $239.6 million in Ebitda on roughly $2 billion in sales for the 12 months, up from $226.4 million in Ebitda on $1.9 billion in revenue a year earlier. Further, Graham on Sept. 30 had plenty of liquidity, with nearly $111 million in cash and equivalents on hand, plus $239.2 million in availability on an unused revolver.
Finally, most of its debt doesn't come due for years -- roughly $1.8 billion must be paid on the revolver in 2011.
The real question may be if Hicks shareholders want to gobble Graham or look for a tastier acquisition. - David Elman
