In the capital market, listed companies hope to produce the effect of 1+1>2 by acquiring high-quality assets.

Recently, the aluminum cans manufacturing industry leader org  made a big move to offer to buy COFCO packaging control of about 5.5 billion yuan. In the case of China Baowu, the parent company of Baosteel Packaging, a competitor, the two sides staged a scramble. Who can do better? The results are not yet known.

At the 2023 annual results presentation, org replied to investors about the advantages of the bid, saying, “The company has rich experience in the field of metal packaging mergers and acquisitions integration, since becoming a shareholder of CoFCO Packaging, the two sides have maintained good business cooperation.”

It is worth noting that behind the takeover war of org , whether there is financial support and whether there is a high debt repayment ability is also concerned by the outside world.

As of the close of trading on June 11, the share price of Aoruijin was 4.5 yuan, and the total market value was 11.58 billion yuan.

Why the takeover battle?

Our main business is to provide comprehensive packaging solutions for all kinds of FMCG customers. As of the end of 2023, metal packaging products and services accounted for 86.97% of the company’s revenue.

In order to consolidate the main business, expand strategic customers, etc., on June 7 this year, Ao Ruijin issued a major asset purchase plan, the company intends to offer shares per offer price of 7.21 Hong Kong dollars, to all shareholders of CoFCO packaging voluntary conditional comprehensive offer.

The transaction is capped at 6.06 billion Hong Kong dollars (about 5.57 billion yuan at the latest exchange rate). If the transaction is successfully completed, Oregin will take control of CofCO packaging.

It is understood that the above transaction is a market tender offer, there are competing offerors. On December 6, 2023, China Baowu, the parent company of Baosteel Packaging, launched a comprehensive offer to buy CoFCO Packaging with the new investment of the United Nations. Now, it’s two wolves chasing a piece of meat.
Why is COFCO packaging so sought after? The underlying reason is that whoever wins control will have a commanding market share advantage over the other side.

According to the data disclosed by the Prospective Industry Research Institute, in the two-piece tank market, the market share of ORG Baosteel packaging, CoFCO packaging and Sheng Xing Holding is 20%, 18%, 17% and 12% respectively. Another set of data shows that the revenue scale of org , CoFCO Packaging and Baosteel packaging in 2023 is 13.84 billion yuan, 10.27 billion yuan and 7.76 billion yuan respectively.

China Galaxy Securities analysts have mentioned in the research report that if org  successfully achieved the acquisition, the market share of two cans is expected to be close to 40%, and the market share of three cans is expected to be significantly improved, and the scale effect of the company will be further strengthened.

At present, the shareholding ratio of COFCO packaging shareholders is relatively dispersed, and there is no actual controller. In order to maintain market share advantages and avoid being overtaken by competitors, org chose to fight head-on and insisted on bidding for the control of CoFCO packaging.

Next, do not rule out the “takeover war” intensified.

Risk points behind the acquisition

In the announcement, org warned of “the risk of termination due to failure to obtain approval”, “competition risk”, “the risk of rising debt scale of listed companies” and so on.

Among them, the outside world is more concerned about the “financial resources” and “solvency” of Org.

At the end of the first quarter of this year, Org’s monetary funds were 1.427 billion yuan. The trading cap is about 5.57 billion yuan, it can be seen that the amount of money that Orj needs to raise is not a small amount.

Org chose a cash acquisition and intends to pay the transaction price with its own funds and self-raised funds (including applying for loans from banks).

From the perspective of asset-liability ratio, from 2021 to 2023, org asset-liability ratio was 53.47%, 50.47 and 45.66%, respectively, which decreased by 7.81 percentage points in the past three years. In the first quarter of 2024, the asset-liability ratio was 44.48%, down 4.34 percentage points year-on-year.
From the perspective of short-term debt repayment indicators, from 2021 to 2023, the current ratio of Oregold is 1.069, 1.160 and 1.109, and the quick ratio is 0.740, 0.839 and 0.835, respectively, showing a trend of first rising and then falling. In the first quarter of 2024, org’s current ratio and quick ratio were 1.137 and 0.896, and the values in the first quarter of 2023 were 1.227 and 0.876, respectively.

Public information shows that the current ratio is usually considered to be 2:1, and the quick ratio is usually considered to be 1:1.

Further, at the end of the first quarter of this year, the total amount of short-term borrowing + non-current liabilities due within one year of org was about 3.087 billion yuan, about 1.66 billion yuan higher than monetary funds.

Previously, org warned of the risk that “the company’s self-financing way to raise transaction funds will increase financial costs, and the company’s debt scale and asset-liability ratio will be increased.” If the transaction is unable to achieve synergies and improve the capital structure in the near term, there is a risk that the Company’s short-term solvency and subsequent debt financing ability will be adversely affected.”

We will continue to watch whether this transaction of org can be successfully implemented.

Erjin Packaging has been maintaining cooperation with the three major metal can factories in China for 15 years, providing customers around the world with metal can packaging design and production services, diversified printing processes, and support sample services