Rexam rockets after £4.2bn US bid

Talk that Rexam was vulnerable to a takeover has been rumbling on for a while. Now it turns out there was substance to the rumour as US giant Ball Corporation appears ready to cough up £4.2 billion for the British company which makes drinks cans for Coca Cola and Red Bull.

The Americans, which earlier published fourth-quarter results, have admitted they would be prepared to pay 610p a share for Rexam, split two-thirds in cash and one-third in new Ball shares. That would be a record high for Rexam shares and equates to about 17.5 times earnings estimates for 2015.

But this is still an opportunistic bid. Yes, it's a 44% premium to last week's 29-month low, but Rexam shareholders will also be aware that the shares traded as high as 550p as recently as last July. And 2015, according to Barclays, "could be the point of maximum pain for Rexam." A current share price of 547p suggests this is by no means a done deal.

Rexam would certainly be a prize asset for Ball. If the deal gets past the inevitable, and substantial, regulatory hurdles, it will leave the new company pitted against US peer and closest rival Crown Holdings.

It's been a well-run business under CEO Graham Chipchase who has overseen the disposal of the underperforming plastic-packaging and healthcare divisions for over $1.6 billion. That leaves Rexam as a pure play on the beverage cans market, which is growing steadily but continues to throw up challenges in terms of costs and shrinking margins on some US specialty cans.

But Ball will get Rexam's coveted India assets. The UK firm may have missed out on the Chinese market where both Ball and Crown currently do well, but it has had a foothold in India since 2008, a potentially massive market that Ball will be keen to exploit.

Ball and Rexam must reach agreement by 5 March to satisfy UK takeover rules.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.