Private equity firm Apollo Management is in talks to purchase Pactiv (PTV), the maker of Hefty trash bags, the Wall Street Journal reported, citing unnamed sources.

So far, investors are taking the rumor seriously and shares of the company are up over 18% to $28.34 late Monday morning. This puts the market cap at roughly $3.8 billion.

If the deal goes through, it will be one of the largest since the buyout market cratered in 2007.

A Top Player in the Packaging Market

Spun off from Tenneco in 1999, Pactiv is now a top player in the food packaging market. Its products include waste bags, storage bags and disposable tableware.

Pactiv operates 43 manufacturing facilities in North America, as well as one in Germany. It also has two joint ventures in China. Although, roughly 96% of Pactiv's business comes from sales in North America.

No doubt, the company realizes it needs to extend its product line. To this end, the company has made selective acquisitions and has invested heavily in research and development. Management has focused on building a stronger distribution footprint, and also looked for ways to reduce overall costs, such as with improved logistics.

All in all, Pactiv has a fairly stable business. In the company's latest quarter, sales increased 1% to $777 million and income from continuing operations was $48 million (the company had to take a charge for reduced deductions for health care expenses).

Pactiv is currently in the process of increasing prices to keep up with the rising costs of materials. Also, as the economy comes back, the company should see improved top-line performance. For the year, Pactiv sees earnings of $2.10 to $2.30, which is down from the prior guidance of $2.20 to $2.40. Sales are expected to grow between 10% to 12%.

Buyout Speculation

With its strong Hefty brand and stable financials, Pactiv is certainly an attractive buyout candidate. There should also be more opportunities to cut costs and perhaps acquire companies. In fact, Apollo has experience in the sector, as seen with deals like Berry Plastics, Captive Plastics and Covalence Specialty Materials.

But investors need to be wary. Even with the return of buyout financing, it is not easy to pull off a large deal. Besides, it is still unclear what the valuation would ultimately be. And even if there is a deal, it will not likely be closed for a couple of weeks.

So for investors, it's probably best to avoid Pactiv for now. This is really something for those who can actively follow the stock and are willing to stomach the risk.

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