Saint-Gobain packaging division IPO scheduled for 2Q11 at the earliest

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Saint-Gobain (SGO FP) does not expect to proceed with the IPO of its glass packaging division until the second quarter of 2011 at the earliest, a person familiar with the situation told mergermarket.

The listed, French construction materials group announced last week that it has begun preparations for a possible legal reorganization of its packaging division with a view to carrying out an IPO.

The second quarter of 2011 would be the earliest time by which an IPO could be organised, given that all the different employee representative bodies which are required to render an opinion have yet to be consulted. In addition, Saint-Gobain needs to obtain approval from the AMF, the French financial markets regulator.

A source familiar with the situation said BNP Paribas, Saint-Gobain’s longstanding relationship bank, was most likely to handle the IPO, along with a US bank. However, it was too early to designate any appointment.

Several financial analysts surveyed by this news service said such a listing could value the glass packaging division at an enterprise value of between EUR 3.5bn and 4bn. One analyst based this valuation on the current share price of Owens-Illinois, Saint Gobain’s US-based competitor, which is currently priced at 8.5x operating profit for 2010. The operating profit of Saint Gobain’s packaging division was EUR 430m in 2009.

Saint Gobain had ideally wanted to sell the division to a private equity firm, but no suitably-priced offers had been forthcoming, the source familiar with Saint Gobain said. The source said that the difficulties PE firms have had obtaining such a large amount of acquisition finance have limited their options. BNP-Paribas, JP Morgan and Bank of America had been mandated to try to sell the business going as far back as 2007.

Union troubles brewing?

Meanwhile. a top union representative told this news service that Saint-Gobain will hold a workers’ council meeting on 22 October to launch an employee consultation process as a result of concerns raised by the packaging division IPO.

A person familiar with Saint-Gobain indicated that the company would retain the unit, at least in the near term. This person explained that it would be difficult for the group to list the entire business all at once, given its complexity.

A representative for communist-led union CGT, which is influential within the group as a whole, said Saint-Gobain would be likely to pursue a partial IPO of about 30% or 40% of the business. However, a period of uncertainty would follow such a strategy, the representative went on to say, noting that the company’s shareholder register would be scattered among institutional investors, pension funds and possibly sovereign wealth funds. This would make it more difficult for the 15,000-odd employees of the division to have their voices heard, the representative said.

A top representative at the Confederation Generale des Cadres (CGC), which represents white collar workers, said that their main worry would be the fate of the business in the next three or four years, once Saint-Gobain has begun separating itself strategically from the division. This representative said that at that time the unit could see industrial players or investment funds acquire portions of it, leading to a potential restructuring.

Both union representatives said Saint-Gobain employees retain unpleasant memories of the 2007 sale of the Desjonqueres subsidiary to investment funds Sagard and Cognetas (SGD). After incurring heavy indebtedness, layoffs and a loss of market share, the financially restructured business was re-sold to the US fund, Oaktree Capital Management.

A top official at the CGT Federation of the Glass Industry and the CGC source also voiced concerns about how Saint-Gobain will fare once the “cash cow” packaging division is not part of the group.

One of the union sources said that Saint-Gobain could face delay manoeuvers, as in the case of the merger between Gaz de France and Suez, where unions delayed the rendering of their opinion, thereby causing the merger to be held up for months.

French IPO market remains difficult

The market for IPO’s in France remains difficult. Last month Accor [AC FP], the listed French hotels business, decided to withdraw the listing of its 49%-owned luxury hotels and casino subsidiary, Groupe Lucien Barriere, as a result of a lack of investor interest. Lucien Barriere was only going to fetch between EUR 575m and EUR 700m.

However, Saint Gobain hopes that by 2011 the economic environment will have improved to the point where the packaging division, which reported sales of EUR 3.4bn in 2009, will be valued at a fair price.