Rio to sell packaging unit for $2 billion, trim debt

By Saeed Azhar and Denny Thomas

SYDNEY (Reuters) - Global miner Rio Tinto (RIO.AX) agreed to sell its Alcan packaging unit for about $2 billion to Australia's Amcor Ltd (AMC.AX), easing its debt burden after an ill-timed acquisition two years ago.

Amcor said the deal will make it a leading global player in key packaging markets. It marks Amcor's first big buy under Chief Executive Ken MacKenzie, following four years of fixing, closing or selling businesses which had suffered after a $3.2 billion takeover binge in Europe and the Americas earlier this decade.

The deal is a key part of Rio's (RIO.L) efforts to pay down $38 billion in debt. Two years ago, the world's second-largest miner targeted $15 billion in asset sales to help cut debt after buying the Alcan aluminum business at the top of the market.

"Their debt is well under control, it's just a question now of getting rid of non-core assets and being disciplined in doing so," said Tim Schroeders, a fund manager with Pengana Capital, which oversees about A$6 billion.

Buying interest for Rio's assets has slipped since the global financial crisis, forcing the company to turn to a $15.2 billion rights issue in June to raise capital.

"This gives Rio that flexibility. There is obviously a large number of projects in exploration and development that now can be seriously entertained. Whereas before it was more a case of managing cash flows," Schroeders added.

Rio had already agreed to sell assets worth $6.6 billion over the last 18 months. "The divestment program continues for other assets identified for sale, including Alcan Engineered Products," Rio said in a statement.

Rio said in June its net debt would be cut to $23.2 billion following the rights issue. Rio reports earnings on Thursday.

Bigger mining rival BHP Billiton (BHP.AX)(BLT.L) had debt of $5.6 billion at end-June.

DEAL TO BOOST AMCOR EARNINGS

Amcor will raise A$1.6 billion of underwritten equity via a 4 for 9 rights issue at A$4.30 a share, as well as debt to fund the deal. The issue is priced at a discount of 24 percent to Amcor's last traded price.

"Following the acquisition, Amcor will be among the world's largest packaging companies, with leading positions in flexible packaging, custom PET containers and folding cartons for tobacco packaging," Amcor said in a statement.

In a report last week, investment bank RBS said the potential boost to Amcor's earnings by an acquisition of Alcan's packaging assets would be a powerful near-term share price catalyst.

Amcor shares remain suspended since Monday. Rio shares were steady at A$57.08.

Amcor said its full-year net profit before one-offs slipped 1 percent to A$360.5 million ($296 million), in line with market forecasts.