On August 19, Bruce Raynor, president of Workers United, an affiliate of the Service Employees International Union, sent a letter [see below] to Henry J. Theisen, the chief executive officer of the Bemis Company. In his letter, Raynor calls on Theisen to provide key details regarding the company's planned acquisition of Alcan Food Packaging Americas, including information about the anti-trust regulatory hurdles the company must clear as well as integration and other concerns to investors.
August 19, 2009
Henry J. Theisen
President and Chief Executive Officer
Bemis Company, Inc. One Neenah Center P.O. Box 669
Neenah, WI 54957
Dear Mr. Theisen,
I am writing on behalf of Workers United to express our growing concern over Bemis Company Inc.'s pending acquisition of Alcan Food Packaging Americas from Rio Tinto plc. We are long-term stakeholders in Bemis, both as a representative of the company's employees and as shareholders of the company through pension plans maintained for the retirement benefits of thousands of workers. We fear that the proposed transaction may negatively affect the company's long-term success and request that the company address some key questions we have.
First, we are concerned about the debt load that Bemis will incur in order to facilitate the Alcan acquisition. According to company sources, Bemis plans to finance the deal with $1 billion in new debt. Prior to the deal, the company's debt to capital ratio stood at approximately 26%. With the addition of the new debt Bemis has announced will be used to finance the deal, the company's debt-to-capital ratio is expected to balloon to 48%, which is substantially higher than the firm's targeted ratio of 30% to 40%. The transaction will increase Bemis's total debt by 170%.
Bemis has traditionally maintained a conservative debt-to-capital ratio and has been wary of acquiring a heavy debt load. As a stakeholder, we are concerned over the impact of the company's decision to assume a heavy debt load and substantially alter the company's size and capital structure in the midst of a global economic recession.
Second, Bemis Company's history of recent legal troubles and federal prosecution around alleged anti- competitive practices may decrease the likelihood that the Alcan transaction will receive necessary regulatory approval. In April 2003, the Department of Justice successfully enjoined Bemis Company's proposed sale of subsidiary Morgan Adhesive (MACtac) to UPM-Kymmene on the grounds that it would undermine competition in the U.S. labelstock industry. Bemis and its subsidiary Morgan Adhesives have been named in more than a dozen lawsuits charging price-fixing that followed the 2003 Department of Justice suit and Federal injunction. Bemis is currently seeking approval for a settlement of a national class action lawsuit (IN RE: PRESSURE SENSITIVE LABELSTOCK ANTITRUST LITIGATION No. 3:03-MDL-1556, USDC - Pennsylvania) which claimed that between 1996 and 2003, Bemis Company, its subsidiary MACtac, and key competitors "conspired to fix, raise, maintain or stabilize prices for self-adhesive labels stock sold in the United States."
Bemis Company's history of legal and regulatory challenges over its competitive conduct may impact the views of regulators at the Department of Justice. In addition, the company faces anti-trust review from the Canadian Competitive Bureau and the Mexican Federal Competition Commission which are responsible for markets where both Bemis and Alcan operate. Alcan Packaging Food Americas is Bemis Company's top competitor in flexible packaging for processed meat, cheese and dairy, a top five competitor in plastic film and sheeting, and a significant label producer. What steps has Bemis taken to avoid anti-competitive practice-related problems from arising again in the future?
We also question why the company decided to dilute shareholder equity by selling over eight million shares of stock prior to receiving regulatory approval for the Alcan transaction, especially given Bemis's troubled history with regulatory approval. Given the size of this purchase, its significant impact on the company's debt, and the issuance of shares it required, will the company be submitting the acquisition to shareholders for approval?
Lastly, the Alcan acquisition may present significant integration challenges that may be exacerbated by the company's lack of experience integrating large operations. Alcan is several times larger than any company acquired by Bemis during the past ten years. Its integration into Bemis's existing structure may prove more difficult and costly than anticipated.
Bemis Company's ongoing viability and success is extremely important to us and our members who depend on the company to provide jobs and to pension funds who are owners of Bemis Company stock. We are deeply concerned that the company's proposed acquisition of Alcan Packaging Food Americas may be too risky and may put the firm's future profitability in doubt. We would appreciate a prompt response to our questions.
Sincerely,
Bruce Raynor, President
cc: Tom Albanese, Chief Executive Officer, Rio Tinto plc.