AUSTRALIA – Orora Ltd, an Australian packaging maker has agreed to sell its local fibre materials business to Japan’s Nippon Paper Industries for A$1.72 billion (US$1.15 billion).

The sale of the business is set to simplify Oraro’s operations as the company seeks to focus on its higher growth Australasian glass and aluminum beverage and North American businesses.

The acquisition of the Orora Australasian Fibre Business will be made via a newly incorporated subsidiary of Nippon Paper, Australian Paper which owns the Maryvale Mill and employs about 1250 people.

“[The deal] will allow us to expand into new sectors such as box and carton manufacture along with paper bags and sacks bringing us closer to end markets,” said Peter Williams, chief operating officer of Australian Paper.

“One of the Nippon Paper Group’s key growth strategies is to further expand into the fibre packaging business globally. This acquisition is aligned with that strategy and a natural fit given its existing investment in Australian Paper,” he said.

Orora said that its plans to return the bulk of the funds from the sale to shareholders and expects a net gain of about A$225 million (US$151.95 million) from the deal.

The sale will make net cash proceeds of about A$1.55 billion (US$1.05bn) from an enterprise value of A$1.72 billion and Orora intends to return about A$1.20 billion (US$810m)of that to shareholders through capital management initiatives.

The company said that it continued to implement profit-improvement activities to lift its earnings, and that it saw strong long-term growth in both of its remaining businesses.

Orora chief executive Brian Lowe told The Australian Financial Review the majority of workers in the fibre business would be retained by Australian Paper but that there would be reductions in areas such as corporate services.

“As a more streamlined group of businesses, there may be some reduction in roles required to support the Orora Group activities going forward,” he said.

The transaction, which is expected to close in early 2020, pending regulatory approval in Australia and New Zealand, would be the third-largest Australian acquisition by a Japanese company this year, according to Refinitiv data.

Nippon Paper and its Australian subsidiary has identified paper packaging as a key growth area, forecasting a global “changeover from paper to plastic” driven by environmental and garbage disposal concerns.

The company acquired a majority stake in the Malaysia-based TS Plastics in April with a promise “to promote the paperising of flexible packaging”.