TTR Dealmaker Q&A
Owen-Illinois acquires Vitro´s glass container business
Simpson, Thacher & Bartlett
Alan Klein, co-administrative partner at Simpson, Thacher & Bartlett, led the legal team that advised Owens-Illinois in its USD 2.15bn all-cash acquisition of Vitro’s glass container business that closed on 1 September. The acquired assets include five plants in Vitro’s home market, Mexico, one in Bolivia and the seller’s distribution lines in the US.
Q: How did Simpson, Thacher & Bartlett land this mandate?
A: We’ve worked with Owens-Illinois for over 25 years, since KKR acquired Owens-Illinois in the late 1980s. We were one of the firms involved in the acquisition and financing of that deal. I started working with Owens-Illinois in the late ‘80s and since that time have helped them with innumerable acquisitions and divestitures, as well as prospective transactions.
Q: How long was Vitro’s glass business in the sights of Owens-Illinois?
A: It’s something Owens-Illinois has been thinking about going back several decades.
Q: Why was this collection of assets attractive and strategic for the buyer?
A: It’s a natural geographic extension for Owens-Illinois because they have a strong position throughout the US, Canada and Latin America, so it’s a natural fit. It’s a natural combination from Owens-Illinois’ perspective. Vitro was a leading container and glass manufacturer in Mexico and filling that gap is something Owens-Illinois has been interested in for a long time.
Q: Why was this the right time to launch a bid?
A: It was a point in time when the buyer and the seller were able to agree on a price, which they’d never been able to do before. Vitro’s glass manufacturing business was performing well, and Owens was in a position to afford to pay the price that Vitro was looking for. There was a negotiation and they were able to reach an agreement on price.
Q: What were the obstacles to the deal closing in past attempts?
A: When one party was ready the other wasn’t, and vice versa.
Q: What made this transaction particularly challenging?
A: It’s a carve-out from the rest of Vitro’s business. My experience has been that whenever you’re buying a part of a company where the assets have been intermingled with other parts of the seller’s business, you have to sort of tease that apart and unwind everything. They had a lot of restructuring to do, they had to move things around internally and that leads to a whole host of approvals needed from vendors, from landlords, and then there’s a whole host of associated tax issues. It’s like taking a box of puzzle pieces, throwing them on the ground and then putting them back together — it’s a painstaking process.
Q: How long did the transaction take to complete?
A: Once we were able to get an agreement on terms, we were actually able to close it by the beginning of September, so it only took three-and-a-half months from the announcement date of 13 May, which is quick. It took a lot of work and some luck to get it done so quickly.
Q: How did your team of 20 attorneys navigate these challenges?
A: It required close collaboration with the seller’s counsel and a lot of attention to detail. Corporate, intellectual property, tax and real estate, were all key parts of the team.
Q: To what extent was antitrust a consideration?
A: Competition was certainly involved and they did a great job because we got approvals in the US and Mexico in relatively short order. Glass is a funny thing, glass bottles in particular. They’re heavy and fragile, and consequently most of Vitro’s production is sold in Mexico. There was no second request from the FTC and the Mexican authorities got quite comfortable with it as well. Though Owens-Illinois is a major producer in the US, both US and Mexican authorities had no objection, for the reason that the production from Mexico is overwhelming used in Mexico. It doesn’t change the profile of either market. Owens is stepping into Vitro’s shoes in terms of manufacturing glass containers. It shouldn’t have an effect on the Mexican market.
Q: Why did the buyer opt to finance the transaction with cash?
A: Owens-Illinois was concurrently doing some financings in the public market as well and they had enough cash to do it. They were doing other work on their capital structure. They were taking additional risk with the deal, but Owens was confident that it had enough resources and could keep its capital structure in a healthy, rational state.
Q: What does the deal represent within the context of Owens’ global growth strategy?
A: It’s a piece that’s been missing. Owens is a very global business, with strong presence in the US and Canada, and a strong presence in Latin America. This transaction filled a gap.
Q: What made this deal stand out from other recent transactions you’ve worked on?
A: It’s certainly one of the largest acquisitions in Mexico of an industrial business for sure, and it’s something that’s been on Owens-Illinois’ radar screen, and as a result, our radar screen, for a long time, literally 20 years, as a potential transaction.