(Reuters) – Owens-Illinois Inc (OI.N), which makes bottles for Corona and Pepsi, is to buy Mexico’s Vitro SAB’s glass container business for about $2.15 billion to strengthen its operations in a country that houses numerous distilleries and bottlers.
Shares of O-I, the world’s largest glass container maker, jumped as much as 10.7 percent, while Vitro’s (VITROA.MX) rose as much as 22.6 percent to a record high on Wednesday.
Mexico hosts operations for Diageo (DGE.L), Heineken (HEIN.AS) and Corona maker Constellation Brands Inc (STZ.N) as well as bottling operations for Coca-Cola (KO.N) and PepsiCo (PEP.N) – all of which are customers of O-I and Vitro.
O-I will get Vitro’s five plants in Mexico and one in Bolivia, potentially giving it additional customers such as tequila makers Jose Cuervo and Sauza and salsa maker Herdez (HERDEZ.MX).
O-I’s move to boost its operations in the fast-growing Latin American market comes as plant closures and stiff competition dent its Asian operations and its Australian business is being hurt by weak demand for beer and wine.
Mexico’s glass food and beverage packaging market is expected to grow to 25 billion units by 2018 from 23 billion units in 2014, according to market research firm Euromonitor.
The market has been driven primarily by strong demand for beer, said Robert W Baird & Co analyst Ghansham Panjabi.
O-I said the combined company is expected to have annual revenue of about $7.51 billion, of which the Vitro business is expected to contribute $945 million. O-I reported sales of $6.78 billion in the year ended Dec. 31.
The company expects the acquired business to add 30-40 cents per share to earnings in the first year after the deal closes and about 50 cents per share by the third year. The deal is expected to close in the next 12 months.
O-I, which get more than two-thirds of its sales from outside the United States, said it expects the all-cash deal to generate about $30 million in run-rate cost savings by 2018.
The company said it has secured committed financing from Deutsche Bank, its financial adviser for the deal. Simpson Thacher & Bartlett LLP is legal adviser.
O-I’s shares were up 10 percent at $26.16 in afternoon trading on the New York Stock Exchange. Vitro’s shares were up 22.5 percent at 43.19 pesos in Mexico City.
Up to Tuesday’s close, O-I’s shares had fallen about 29 percent in the past 12 months, while Vitro’s had gained 1.4 percent.
BY ANKIT AJMERA (Editing by Savio D’Souza)