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Packaging company Silgan Holdings Inc. (SLGN - Analyst Report) has entered into a definitive agreement to acquire Portola Packaging for $266 million. Subject to customary closing conditions, the transaction is scheduled to close in September.

Headquartered in Naperville, Ill., Portola Packaging is a manufacturer of plastic closures. It has eight plants in North America and Europe and posted sales of about $200 million in 2012. Portola has also made a name for itself in closure design innovation and operational leadership.
Last year, Portola exited the cosmetics market, closing plants in Rhode Island and China. The company will now spend $12 million to install new high-speed compression and injection molding equipment, upgrade existing production lines and make infrastructure replacements and upgrades at its plants in Kingsport, Tenn., and Tolleson, Ariz.

Silgan, on the other hand, is a leading manufacturer of consumer goods packaging products operating 81 manufacturing facilities in North and South America, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products.

As, both companies are involved with the production of packaging material for food and other products, this acquisition will provide Silgan an opportunity to enhance its global closure franchise. The deal will also help in expanding Silgan’s small European plastic closure, while providing a broader platform to service its customers' market needs.

Silgan expects to fund the acquisition from a combination of cash on hand and borrowings under the company's senior secured credit facility. The acquisition is expected to be slightly accretive to earnings initially, excluding the impact of the required purchase accounting write-up of inventory as synergies are phased in over the next 18 months.

Stamford, Conn.-based Silgan, which belongs to the containers industry along with Ball Corporation (BLL - Analyst Report), Mobile Mini, Inc. (MINI - Snapshot Report) and Greif, Inc. (GEF - Snapshot Report), reported its second quarter 2013 adjusted earnings of 63 cents per share, up 15% from 55 cents earned in the year-ago quarter, but missed the Zacks Consensus Estimate of 65 cents. Total revenue increased 7% year over year to $880 million, beating the Zacks Consensus Estimate of $862 million.

Revenues for the Closures segment, however, slipped 0.9% to $181 million, affected by lower beverage volumes in the U.S. as a result of adverse weather conditions and significantly lower sales in Venezuela due to political instability. Favorable foreign currency partly offset the decline.

Silgan will benefit from its successful acquisitions, increasing productivity and cost reduction initiatives, such as the newly started Can Vision 2020. However, soft demand in Europe, a high debt-to-capitalization ratio and lower volume expectation remain concerns.

Silgan currently retains a Zacks Rank #3 (Hold).

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