CORRECTED-UPDATE 2-Saint-Gobain begins Verallia exit with $1.7 bln deal

Mon Jan 14, 2013 9:50am EST

(In headline, corrects currency to dollars from sterling)

* Ardagh Group offers $1.7 billion

* Offer worth 6.5 times 2012 EBITDA

* Saint-Gobain keeps options open for rest of Verallia

By Elena Berton and Dominique Vidalon

PARIS, Jan 14 (Reuters) - Saint-Gobain has struck a deal to sell its North American glass container operation to Ireland's Ardagh Group for $1.7 billion, beginning its planned exit from the low-margin business.

While the French group looks to focus on higher-margin building materials operations, Ardagh's worldwide glass business will increase by 60 percent, Chairman Paul Coulson said in a statement, with about 40 percent of sales generated in the United States.

Plans by Saint-Gobain to spin off the whole of Verallia, which makes jars for Nutella spread and bottles for Dom Perignon champagne, had to be shelved in 2011 because of the deepening euro zone crisis.

The deal announced on Monday, however, equates to 6.5 times Verallia North America's 2012 earnings before interest, tax, depreciation and amortisation (EBITDA), which was $261 million.

One Paris-based trader noted that the price tag represents about 30 percent of Verallia's total EBITDA. Implying the same multiples for the rest of the business, he said, would value the whole of Verallia at $4.3 billion, way above estimates when Saint-Gobain was planning to offload 40 percent through a share listing.

Saint-Gobain is now considering its options for the remainder of Verallia's activities in Europe and Latin America, including an initial public share offering (IPO) or straight disposals.

The decision, however, will depend on market conditions, Chief Executive Pierre-Andre de Chalendar told reporters. "The various options remain open, but we are not in a hurry. Financial markets in Europe today don't allow these types of operations (at the moment)," he said.

The sale proceeds will be used to strengthen the French group's balance sheet and target small or medium-sized acquisitions, Chalendar said.

STRATEGIC SENSE

Saint-Gobain, which was founded in 1665 to produce mirrors for the royal court of Versailles, has shifted to higher-margin innovative materials for which there is growing demand as the construction industry shifts its focus towards energy-efficient buildings.

The downturn in the auto industry has hit the group's industrial glass operations, while demand for building materials in western Europe has been dampened by the economic slowdown.

Natixis analysts said in a note to clients that the price for Verallia North America is right and that the deal makes sense strategically, as the penultimate step in Saint-Gobain's exit from the glass packaging business.

Shares in Saint-Gobain were trading 2.3 percent higher at 32.46 euros at 1227 GMT, outperforming a 0.37 percent gain for the CAC40 index.

The Verallia North America deal is expected to close within six to nine months, pending approval from Saint-Gobain's workers' council and U.S. antitrust authorities.

Jefferies analyst Mike Betts said in a research note that the multiple in the deal was at a 7 percent premium to that at which U.S. rival Owens-Illinois trades.

Verallia North America is the second-largest glass bottles and jars maker in the United States, behind Owens-Illinois, with 2012 revenue of $1.62 billion and operating income of $171 million.

Irish group Ardagh is financing the acquisition through a $1.45 billion high-yield bond issue.

The deal is the second large-scale U.S. acquisition by Ardagh, which in July bought Anchor Glass Container Corp for 721 million euros ($962 million), becoming the market's third-biggest player behind Owens-Illinois and Verallia.

Jefferies analyst Betts said the deal could raise antitrust warning flags because it would leave Ardagh controlling 50 percent of the North American glass container market, though he added that the deal was likely to be approved "with only minor divestments".

Citi acted as financial adviser to Ardagh and provided financing for the deal. ($1 = 0.7493 euros)

(Additional reporting by Cyril Altmeier, Christian Plumb and Blaise Robinson in Paris; Editing by Blaise Robinson and David Goodman)

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