Mexico“s Vitro S.A, the world“s third-largest glass manufacturer, has announced that it has reached a non-binding letter of intent to sell Anchor Glass, its lossmaking US subsidiary. The move prompt…
Mexico“s Vitro S.A, the world“s third-largest glass manufacturer, has announced that it has reached a non-binding letter of intent to sell Anchor Glass, its lossmaking US subsidiary. The move prompted Anchor Glass to file for protection against creditors under Chapter 11 of the US bankruptcy code, a move designed to ensure its continued operation pending completion of the sale. Anchor Glass said that Ball-Foster Glass, the second-biggest glassmaker in the US, owned by France“s Saint-Gobain, had signed a non-binding letter of intent to acquire the assets of the company for US$ 365 million in cash, plus the assumption of certain liabilities. Anchor Glass has debts of about US$ 900 million, according to Vitro“s consolidated financial statements. Vitro, which has withdrawn financial support for Anchor Glass, says it has not guaranteed any of Anchor“s debt, so US creditors will not be able to make any claims on Vitro. As the take-over will merge the second and third-largest glassmakers in the US, the operation may still be subject to regulatory approval. Under Chapter 11 rules, Anchor Glass must also seek court approval for the sale of assets. Anchor Glass accounted for about one-third of Vitro“s annual sales of US$ 3 billion, but operating losses over the past two years had forced Vitro to inject US$ 140 million to keep its US subsidiary afloat. In 1989, when Vitro bought Anchor Glass, the move was heralded as a piece of Mexican corporate bravado. “The image of a Mexican company buying a US rival was tremendously powerful,” said Mr. Shane McGuire, an analyst at Deutsche Morgan Grenfell. “Then reality set in. The glass industry in the US declined faster than expected, and fierce competition compressed operating margins to no more than 2 or 3%.” Last year, Anchor Glass incurred a US$ 65.9 million loss on sales of US$ 956.6 million. Ball Corp., of the US, announced that it will sell its 42% interest in Ball-Foster to its partner in the joint venture, Saint-Gobain, for about US$ 190 million. Ball had planned to sell its Ball-Foster stake within a few years, however, the Anchor Glass deal accelerated that timetable. For Ball to maintain 42% ownership, the company would have had to invest additional money or see its stake diluted by the Anchor acquisition. Ball, which makes metal and plastic packaging mainly for foods and beverages, said it will record a gain on the sale, but did not specify the amount. The definitive agreement is expected to close before the end of the year, subject to regulatory filings. Ball said the companies set up Ball-Foster in 1995 to acquire the glass manufacturing operations of both Ball Glass Container Corp. and Foster-Forbes, then a unit of Pechiney SA. In the 1995 third quarter, Muncie, Indiana-based Ball reported a loss of US$ 57.3 million, or US$ 1.92 a share, on revenues of US$ 760.7 million, after charges related to the sale of its glass business.