Zacks_Analysts' Blog : OI Buys Remaining Comercio Stake - Analyst Blog

Owens-Illinois Inc. (OI) increased it ambit in Brazil, South America’s largest economy and container market, with the acquisition of the remaining 21% interest in its southern Brazil glass container company, Owens-Illinois do Brasil Industria e Comercio SA (Comercio), from Monteiro Aranha SA for approximately $140 million in cash.

The acquisition will give Owens-Illinois 100% ownership in Comercio and the transaction is expected to be accretive to 2011 earnings. Comercio's operations include two plants – one in Sao Paulo and another in Rio de Janeiro.

The transaction will allow Owens-Illinois to fully reflect the results of Comercio's operations in its financial statements without a reduction in minority partner interest. For 2010, Comercio's minority interest represented approximately $10 million of Owens-Illinois’ total net earnings attributable to non-controlling interest (approximately $18 million of EBITDA).

Earlier in 2010, Owens-Illinois bought Companhia Industrial de Vidros (CIV), a leading glass container producer in northeastern Brazil, for $603 million. The acquisition boosted Owens-Illinois’ capacity in Brazil by approximately 50%.

The company generated revenues of $975 million in 2010 in the South American region, contributing 15% to its total revenues. Sales volumes in 2010 benefited from the acquisitions in Brazil, as well as organic growth in South America where glass container shipments, excluding acquisitions, increased approximately 20% year on year.  In the recently reported first quarter of fiscal 2011, the region posted revenues of $69 million, or 16% of total revenues. South America led the performance among all regions with a year-over-year growth of 54%.

Economic development tied with increased consumer purchasing power is driving significant growth in the Brazilian container market. Brazil contributes more than 50% of South America’s total GDP and GDP growth. Further Brazil’s glass container industry is projected to grow in the future. Thus, the country is a viable market for expansion.

The current acquisition is in line with Owens-Illinois’ long-term strategy of expansion in fast-growing, emerging markets. Owens-Illinois is particularly focused on Asia Pacific and Latin America given the fact that these markets collectively represent more than 50% of global glass consumption.

Perrysburg, Ohio-based Owens-Illinois is the world's largest glass container manufacturer for food and beverage products, including beer, wine, spirits and non-alcoholic drinks. The company commands market leadership in each of its four operating regions - Asia Pacific, Europe, Latin America and North America. Owens-Illinois competes with Silgan Holdings Inc. (SLGN) and privately held Anchor Glass Container Corporation and Compagnie de Saint-Gobain. The shares of Owens-Illinois currently retain a Zacks #3 Rank (short-term Hold recommendation).