£272m Brazil Buy for Rexam

Rexam, the packaging group, yesterday asserted global leadership of the drinks can business by agreeing to buy Brazil's Latasa for £272m, giving it almost a quarter of the world's market.

The group confirmed it will fund its latest acquisition largely through a discounted and fully underwritten rights issue which is to raise £218m, with the rest of the cost to be met through debt.

The rights issue, previewed in yesterday's Guardian, is the third time in two years Rexam has tapped the City for funds as the group has pursued an aggressive growth strategy.

It is offering two new shares for 11 existing ones at 255p, a discount of 36% to Thursday's closing price of 397p. The deal, warmly welcomed in the City, boosted the shares yesterday. They closed up 33p at 430p.

Graham Chipchase, finance director, said the discount was relatively low compared with other recent rights issues while the recourse to the equity market was designed to contain group debt. This stands at £1.4bn, giving a 140% gearing ratio.

Outlining the deal, which he has pursued for the past two years, Rolf Börjesson, chief executive, said it would enhance earnings in the first year and produce $20m (£12m) in annual cost savings within three years, with up to a quarter of these in the first year.

Latasa, which has 48% of Brazil's drinks can market, mainly in beer, will enable Rexam, with 18%, largely in fizzy drinks, to become the country's biggest can maker - and give it a global market share of 23% or almost 50bn cans.

Mr Börjesson, who is stepping up to become chairman, said Latasa had five modern plants in Brazil so there would be no need for investment in new capacity.

"This company generates a lot of cash - up to $80m a year - so we expect to have got our money back in five or six years and to have Latasa for free from then on," he said.

From next year Latasa, whose sales and earnings have slipped since the devaluation of the Brazilian real in 2002 and subsequent economic slowdown, is expected to benefit from a likely 5% annual growth in Brazil's drinks can market.

Some analysts cautioned that the deal carried risks be cause of uncertainty about Brazilian growth and currency stability, but Mr Börjesson said the company had no exposure to the real as all its transactions were conducted in US dollars.

"We share with many others a positive outlook for Brazil. President Lula has shown himself more conservative than the market expected with regard to taxes, the budget deficit, inflation and interest rates are coming down and consumers are spending again," he said.

He added that, while completion of the deal was not conditional on clearance from the Brazilian competition authorities, he expected this to come within up to a year. Mr Chipchase indicated the company might have to dispose of a plant to win clearance.

Under Mr Börjesson, Rexam has grown rapidly via the £600m purchase of European packaging group PLM in 1999 and £1.5bn acquisition of American National Can a year later.

He said yesterday the group expected to post underlying pre-tax profits of at least £260m this year despite taking a £20m hit because of problems with a "green" deposit scheme for cans in Germany.