We don't need another hero

AFR today reports fund manager Barrenjoey wants ORA to divest Saverglass


Barrenjoey seeks $182m in Orora push

A rotten year for ASX-listed can and bottle maker Orora has activists making moves behind the scenes.

Street Talk understands homegrown investment bank Barrenjoey tried to pull together a syndicate of investors in a single stock fund to nab a 10 per cent stake in the Amcor spin-off and agitate for change.

In a 16-page deck, which went out to family office and high-net-worth types in April, Barrenjoey told interested parties it was seeking a $289 million stake in the company. This would be funded by a $182 million equity raise and $87 million debt. The investment bank would also put up $20 million in equity – or 10 per cent of the stake – exposing itself to potential upside or downside.

Interested parties were told the fund would be highly active, calling for board and management change, seeking to divest its major 2023 acquisition, French glass bottle maker Saverglass (and distribute capital to shareholders) and zeroing in on operational efficiency in North America. This, they said, was in the name of returning Orora’s price-to-equity ratio to ‘‘historical levels’’ and ‘‘ensuring swift earnings recovery’’.

If achieved, Barrenjoey reckons its fund could deliver an internal rate of return of around 24 per cent, or put bluntly, ‘‘2.3-times money in four years’’.

Of note, Barrenjoey laid out how it plans to reap $1.5 billion (€900 million) from the sale of Saverglass, noting that the underbidders One Rock Capital Partners and Lone Star Funds, whose involvement in the auction wasn’t known to the market, bid between €1.05 billion and €1.15 billion. Other bidders were understood to be private equity heavyweights ICG, Advent Partners, Apollo, TowerBrook and BainCapital, Barrenjoey said.

The move comes after Orora sought $1.3 billion from investors in 2023 to fund its $2.2 billion (€1.29 billion) acquisition of Saverglass from The Carlyle Group, representing the biggest equity raise in the Australian market for financial year 2024. Since the deal was announced, Orora’s share price has fallen 32 per cent. In April, the company flagged earnings pain ahead at Saverglass and softer growth in its core packaging business.

Barrenjoey told interested parties Orora’s share price had ‘‘overcorrected’’ and presented a ‘‘good opportunity to implement change with finished downside’’.

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Mr Market has decided ORA overpaid for Saverglass and marked the shares down accordingly.

At current prices, noting the debt, one buys the ORA business very cheaply and gets Saverglass for free. ORA saw the opportunity to become a global business and seized it, at short-term cost to existing shareholders. (I was not one of those. Phew!)

Barrenjoey is pursuing the 'sugar hit' option - returns in cash and a reversion to the old ORA business.

There is an argument for this, yet whether it is the single best path forward for the business and holders is contestable.

We are yet to see a full years' accounts for the merged business and management has been silent since the 2 April trading update. Retail holders cannot form a view on current information.

Still, the attention should help the share price - itself a 'sugar hit'.

Ash