Activist investor urges US Berry to consider sale

HOUSTON (ICIS)–Activist investor Ancora Holdings Group is urging packaging producer Berry Global Group to consider going private or selling itself because its shares are lagging its peers and the larger stock market.

Berry did not immediately respond to a request for comment on Monday.

Ancora owns about 1% of Berry’s outstanding shares.

The investor acknowledged that Berry has a high-quality portfolio of packaging products and it offers a unique value proposition to manufacturing companies around the world. Ancora said Berry’s management team is capable and deserves credit for increasing sales and earnings in recent years.

Despite all of this, Berry’s shares trade a significant discount, Ancora said. The company’s announcement to purchase $50m of shares is insufficient.

“The board did not even increase its existing authorisation,” Ancora said. It called the announcement an insult to investors.

“It is time for the board of directors to take real action to address the impediments to value creation that have compounded at Berry,” Ancora said.

Ancora pointed to what it described as a history of Berry pursuing acquisitions with high leveraged ratios while the company was bearing large amounts of debt.

Berry’s shares continue to underperform even though its leverage ratio is now within its target range of 3.0x-3.9x in terms of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA), Ancora said. It attributes this discount to concerns that Berry could resume acquiring more companies. Berry needs to focus on returning cash to shareholders.

First and foremost, the company should increase its buyback programme to $1bn, Ancora said. Berry should also consider selling some of its real estate and leasing it back. Ancora estimates that Berry has up to $2bn in real estate tied up on its balance sheet.

The company should also consider going private or selling itself. A sale of the company could fetch $100/share from one of the many private-equity firms or strategic buyers in the market, Ancora said. It is unclear if the company’s board has any plans that could earn a similar return.

Analysts at the investment bank UBS said a larger buyback programme could shift sentiment on Berry’s stock and lower concerns that the company lacks an explicit strategy to return cash to shareholders.

“We certainly see an upsized buyback as possible,” UBS said in a research note.

UBS expects Berry should achieve the high end of its guidance for fiscal 2022. The Omicron variant of the coronavirus could increase demand for masks and wipes, which are made of nonwoven plastic fibres.

UBS said prices for polymers should continue falling, which should lower Berry’s raw-material costs.

The company plans to invest $300m/year in growth capital expenditures, signifying a shift that favours organic growth over the integration of acquired companies and capturing their synergies, UBS said.

Berry’s focus towards sustainable and recycled raw materials could allow the company to gain market share, UBS said.

Berry makes plastic packaging out of polypropylene (PP), polyethylene (PE), polyethylene terephthalate (PET) and other polymers.

Ancora provided the following table that compares Berry’s share performance with major stock-market indices and other packaging producers.

Source: Ancora

Thumbnail shows plastic packaging. Image by Shutterstock.