Mexico’s Vitro SAB glass container business is being tendered by Owens-Illinois Inc., the company that makes bottles for Pepsi and Corona.
The offer to purchase the Mexican glass container business comes in at about $2.15 billion. Owens-Illinois Inc., which is the world’s largest glass container maker, is hoping the transaction will help strengthen their operations in Mexico, a country that houses numerous distilleries and bottlers.
After the announcement, Owens-Illinois shares jumped 10.7 percent to $26.16, while shares for Vitro SAB saw a 22.6 percent increase to $43.19 peso. Owens-Illinois expects the acquired business will add between 30 and 40 percent per share during the first year, and about 50 percent per share by year three.
Mexico hosts bottling operations for companies including Corona, Diageo, Heineken as well as Constellation Brands, Inc., PesiCo and Coca-Cola, all of which are customers of Virto and Owens-Illinois.
In the deal, Owens-Illinois will acquire all five of Virto’s Mexican plants as well as a plant in Bolivia. This could possibly give the company additional clients such as salsa maker Herdez and tequila makers Sauza and Jose Cuervo.
Owens-Illinois move to boost operation in Latin America’s fast-growing market comes as stiff competition and plant closures leave their mark in its Asian and Australian market with the decline in beer and wine.
According to market research firm Euromonitor, it’s anticipated that Mexico’s glass food and beverage packaging market will increase from 23 billion units to 25 billion units by 2018.
Owens-Illinois generates approximately two-thirds of its sales from outside the United States and says that the all-cash deal will generate at $30 million in run-rate cost savingings by 2018.
Robert W. Baird & Co analyst, Ghansham Panjabi, says the Mexican market continues to be driven by the strong demand for beer.
Owens-Illinois is expecting an annual revenue of about $7.51 billion, of which Virto is expected to contribute $945 million. Ending December 31, Owens-Illinois reported sales of $6.78 billion for the year.
The deal is expected to close in the next 12 months.