Rexam expands operations in Russia

Rexam has made its second acquisition since the start of June, paying £149m for Rostar, the Russian canmaker.

The move strengthens Rexam's position as Europe's biggest maker of beverage cans and is part of its strategy of building its presence in emerging markets.

The deal with Rusal, the aluminium manufacturer, will be funded through the same package put together to pay for O-I Plastics, which Rexam bought last month for $1.6bn (£793m).

Rostar has a 50 per cent market share in Russia, supplying beer, soft and low-alcohol drink producers. The acquisition will give Rexam a 90 per cent market share.

Having divested its glass business over the past two years, Rexam is concentrating on canmaking and plastic packaging.

The Rostar acquisition is forecast to cover Rexam's cost of capital and be earnings enhancing in 2008.

Rexam said Rostar's earnings had been hit last year by the cost of aluminium, which it had not hedged because of its relationship to Rusal. This year profits are forecast to improve.

Emma Ormond, analyst at Oriel Securities, said the move was a good one, creating useful synergies and likely to enhance earnings by 1 per cent in 2008.

Myles Allsop from UBS said the price was full, but the execution risk was “reasonably low” because of Rexam's good acquisition record.

In December, Rostar had net operating assets of $181m. Current utilisation rates are about 70 to 75 per cent.

The deal is expected to close in the fourth quarter after regulatory approval.

Rexam has operated in Russia for several years and is currently building a new plant at Argayash and expanding its existing unit. It sees the local market expanding by 8 to 10 per cent a year in the next three years.

Credit Suisse advised Rexam on the deal.

Rexam shares fell 1p to 510½p yesterday.