Silgan Holdings Inc. (SLGN) Earnings Call Transcript & Summary

Good day, and welcome to the Silgan Strategic Portfolio Announcement Call. Today's call is being recorded. At this time, I'd like to turn the call over to Alex Hutter, Senior Vice President, Strategy and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us on short notice today to discuss the transformative strategic portfolio announcement for Silgan. Joining me on the call today are Adam Greenlee, President and CEO; and Shawn Fabry, EVP and CFO. Before we begin the call, we would like to make it clear that certain statements made on this conference call may be forward-looking statements. These forward-looking statements are based upon management's expectations and beliefs concerning future events impacting the company and, therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2025 and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements. In addition, commentary on today's call may contain references to certain non-GAAP financial metrics, including adjusted EBIT and adjusted EBITDA. A reconciliation of these metrics, which should not be considered substitutes for similar GAAP metrics can be found in today's presentation, which can be found in the Investor Relations section of our website at silganhollings.com. With that, I'll turn the call over to Adam.

Thank you, Alex, and good morning, everyone. Today's announcement represents a transformative step in Silgan's portfolio evolution and reflects the disciplined value creation framework that has guided our company for decades. The combination of metal packaging or metal packaging business in Trivium creates a best-in-class global platform, provide synergies and establishes a clear path to separation. At the same time, our funding approach will increase flexibility for our faster growing dispensing business, providing multiple pathways to accelerate shareholder value creation. First, we will further strengthen our global metal package business by investing in our markets and product offerings while generating a substantial synergy opportunity. Second, we unlocked approximately $2.3 billion of cash for Silgan while retaining control and future upside created by the combined metal business. Third, we sharpened the strategic focus of both businesses with clearly defined operating priorities and capital structures aligned by a common value creation agenda. Turning to Slide 3. As most of you have seen before, our strategy has been consistent since day 1 and is focused on building and enhancing our positions in the markets we serve by meeting the unique needs of our customers and being the best in what we do. Our strategy centers on competitively advantaged businesses with strong free cash flow generation and we deploy that cash flow in a disciplined returns-based capital allocation process, proven to create value for shareholders over the long term. This model provides flexibility to invest organically execute targeted and disciplined acquisitions or return cash directly to shareholders. The transaction we are announcing today applies the same strategy is at the very core of what we do at Silgan. On Slide 4, you'll see that since 1987, we have completed 41 acquisitions, allocating approximately 45% of total cash deployed to M&A activities. Through our disciplined and balanced approach to capital allocation, we have delivered attractive shareholder returns, particularly through the realization of meaningful synergies generated through M&A as well as organic investments, share repurchases and dividends. Today, our metal containers business provides stability and strong free cash flow to our portfolio, while our dispensing and custom containers businesses provide attractive margins and exposure to premium specialty packaging products in faster growing end markets. Together, these businesses generated approximately $6.7 billion of sales and $976 million of adjusted EBITDA. Turning to today's announcement on Slide 5. Silgan has agreed to acquire Trivium Packaging and an all-cash transaction valued at approximately $3.4 billion. Trivium is a global provider of recyclable metal packaging products and a strong strategic set with Silgan's food and beverage packaging businesses. As part of this acquisition, we intend to combine Silgan metal containers and food and beverage flat cap closures businesses with Trivium to form Silgan MCC. This transaction is structured without requiring meaningful incremental capital on behalf of Silgan's shareholders and will be leverage neutral on a consolidated basis. To achieve this, funds affiliated with American Industrial Partners, or AIP, will contribute approximately $1 billion of cash, and we'll own 40% of Silgan MCC common equity. Silgan NCC will be further capitalized with third-party debt financing, creating a distinct balance sheet intentionally designed to operate the metal business efficiently. Silgan will retain a 60% controlling interest and report the entirety of Silgan MCC as part of our consolidated financial results. At closing, Silgan will receive approximately $2.3 billion of cash proceeds. Our remaining wholly owned dispensing and custom containers businesses will be combined to form a newly named Silgan dispensing Solutions segment. Turning to Slide 6. It is important to discuss why we are pursuing this transaction. On the metal packaging side, we are bringing together 2 highly complementary businesses with expanded scale, broader capabilities and greater geographic reach. The combination strengthens our value proposition to customers while creating an attractive business with predictable earnings and strong cash flow. At the same time, dispensing solutions becomes a more focused growth platform with additional flexibility, we can invest behind innovation, customer partnerships, attractive end markets and disciplined acquisition opportunities. Another key element of the transaction is the synergy opportunity. through a rigorous bottom-up diligence process, we have identified $225 million of expected synergies within Silgan MCC. Importantly, we believe the complementary nature of these businesses creates a unique synergy opportunity that only Silgan is positioned to capture. The structure also creates meaningful financial flexibility. We retain control and future upside in Silgan MCC, while increasing our capacity to invest behind growth opportunities and dispensing solutions and pursue additional value-creating opportunities over time. As I conclude this slide, let me address why now is the right moment for this opportunity. The combination comes at a point when customers increasingly value global scale, supply reliability, sustainability and operational excellence. By bringing together 2 highly complementary businesses, we believe we are better positioned to meet those needs and create value in a way neither company could achieve independently. With that, I will now turn it over to Shawn to review the transaction.

Thank you, Adam. Turning to Slide 7 and 8. The combination announced today values Silgan's existing metal containers and closures business at approximately 8.1x LTM EBITDA. And Trivium is being acquired at approximately 7.1x LTM EBITDA or 4.8x, including expected synergies of $225 million. The acquisition of Trivium was funded through fully committed debt financing at Silgan MCC and approximately $1 billion of cash investment by AIP. At closing, Silgan MCC will be funded with net debt of approximately $4.6 billion representing 4x net leverage, inclusive of $225 million of expected synergies. As Adam mentioned, Silicon MCC will have an independent capital structure and remain a fully consolidated subsidiary of Silgan. Following the transaction, dispensing solutions will maintain an independent balance sheet with initial pro forma net leverage of approximately 1.8x, providing meaningful capacity to pursue attractive organic investments and disciplined acquisitions in our higher-growth specialty packaging businesses. On a consolidated basis, the transaction is expected to be leverage-neutral to silver. Turning to Slide 9. The Silgan MCC structure is fundamental to the transaction's value proposition and AIP will be an important partner in executing our strategy. The firm's experience investing in and supporting manufacturing-focused industrial businesses complement filings packaging expertise. Most importantly, the partnership creates clear economic and strategic alignment. -- and we benefit from improving Silgan MCC's performance, generating cash and building long-term value. Our share focus is clear: close the transaction, integrate the businesses, deliver the synergies and and built a stronger global metal packaging business. Turning to Slide 10. Our current expectation is to achieve approximately $75 million of run rate synergies in year 1, $150 million in year 2 and and $225 million in year 3. The opportunity is based on detailed bottom-up assessment of operations, procurement and SG&A. Following extensive diligence, we are highly confident in both the magnitude and timing of the synergy opportunity. As a result of these expected synergies, the implied acquisition multiple for Tribune decreases from approximately 7.1x to 4.8x adjusted EBITDA, creating a highly compelling opportunity to build an even stronger metal packaging business. Now back over to Adam to talk more about the value creation opportunity.

Thanks, Shawn. And turning to Slide 11. The structure unlocks meaningful scale and financial benefits today while preserving flexibility regarding how we position the portfolio over time. On a pro forma basis, Silgan will generate approximately $10 billion of sales and $1.7 billion of adjusted EBITDA compared with approximately $7 billion of sales and approximately $1 billion of adjusted EBITDA for our current business. Inclusive of the full $225 million of expected synergies, the transaction is expected to drive at least 15% accretion to adjusted EPS and free cash flow, underscoring the financial strength of the transaction. The agreement also establishes a pathway for Silgan NCC to become an independent public company through a tax-free distribution and the timing will be governed by the progress of integration, synergy realization, business readiness and market conditions. As shown on Slide 12, the 2 businesses resulting from this combination will each have distinct financial profiles, products, markets and priorities. Silgan MCC will have approximately $7.3 billion of sales and $1.2 billion of adjusted EBITDA, inclusive of the $225 million of expected synergies. Silgan dispensing solutions will remain wholly owned by Silgan today, generating approximately $2.5 billion of sales and $555 million of adjusted EBITDA with a margin of approximately 22%. This structure allows each platform to pursue the strategy best suited to its opportunities enabled by independent balance sheets and Silgan's disciplined operating framework. Turning to Slide 13. I'm excited about the opportunities this combination creates for our metal packaging colleagues as we further invest in this business. And I am delighted to welcome Trivium's talented team members. With over 100 combined manufacturing facilities, we will be uniquely equipped to better serve our combined customer base. Slide 14 highlights the highly complementary nature of these 2 businesses. Silgan brings principal positions in pet and human food cans across North America, along with global food and beverage closure capabilities. Trivium significantly expands our presence in Europe and has established positions in aerosol and aluminum beverage bottles. Together, the businesses bring complementary products, capabilities and geographic reach. while supporting continued investment in both the United States and Europe. Turning to Slide 15. The metal packaging business remains anchored in the resilient global markets for food cans. -- food and beverage closures, aerosols and aluminum beverage bottles. Key demand drivers include affordability of packaged food, pet food growth, sustainability of metal packaging and opportunities to optimize the combined cost base. Metal Packaging represents an attractive cash-generative business underpinned by long-term customer relationships, stable volumes and consistent demand. As Slide 16 highlights the combined manufacturing network will be an important strategic advantage with capacity to produce more than 27 billion cans and over 30 billion closures annually. That scale and reach will enhance our ability to serve customers locally while lowering our cost. In price-sensitive food and consumer markets, manufacturing efficiency is critical. And through operational excellence initiatives, the combined network creates additional opportunities to improve efficiency while maintaining service and supply reliability. Turning to Slide 17. Our priorities are clear: To integrate the combined platform, leverage the strength of the combined businesses and build long-term value. Following integration and synergy realization, we will evaluate a separation at the time we believe will maximize value for our shareholders. We will apply Silgan's proven operating discipline and accountability to each priority. Successful execution will strengthen earnings and cash flow while increasing Silgan MCC's strategic value. Turning to Slide 18. I'd now like to turn our focus to Silgan dispensing solutions, which will remain 100% owned by Silgan. The transaction further enhances our ability to invest in these faster-growing, higher-margin businesses while enabling our leadership teams to remain focused on innovation, customer partnerships and disciplined growth. Today, this business employs more than 11,000 team members and operate 66 manufacturing facilities with approximately half of sales in North America, 34% in Europe and 16% across the rest of the world. The portfolio includes fragrance and fine mist dispensing systems, health care and drug delivery products, trigger sprayers and plastic containers, all of which provide critical functionality at a low overall percentage of the product cost in categories that highly value innovation, precise performance quality and close customer collaboration. Turning to Slide 19. Over the last decade, we have invested significantly in our dispensing business through acquisitions and organic investments. building a differentiated specialty packaging platform with attractive margins. We've expanded our capabilities, deepened customer relationships and strengthened our positions in higher growth end markets. The result is in greater scale, improved profitability and a strong track record of execution. Looking ahead, we see additional opportunities to continue investing through innovation, customer partnerships and targeted acquisitions and the financial flexibility created by this transaction further enhances our ability to pursue those opportunities. Turning to Slide 20. Silgan dispensing solutions participates in several attractive end markets with multiple sources of organic growth. In health care and pharma markets, we see high single-digit growth potential supported by rising health care spend and expansion of drug delivery routes, where our precision dosing clean room manufacturing and product development capabilities are important differentiators. In fragrance, beauty and personal care markets we see single -- mid-single-digit growth potential as customers seek product differentiation and innovative dispensing formats. In home care and lawn and garden market, we see low single-digit growth potential where our products deliver the durability, functionality and convenience consumers value. Across each of these markets, the common element is innovation. Our products are often critical to how a customer's product is delivered, used and experienced, which creates great opportunities for long-standing partnerships and support customer growth initiatives. Moving to Slide 21. Dispensing Solutions has a proven track record of disciplined capital deployment. Since 2017, Silgan has invested more than $4 billion in these businesses through acquisitions and organic investments. expanding our positions in dispensing products, health care packaging, drug delivery systems, medical devices and custom containers. Our disciplined acquisition model is selective and returns focused, targeting businesses that add differentiated capabilities, strengthen customer relationships, expand our presence in attractive end markets and create opportunities for operating improvement. Turning to Slide 22. Our strategic priorities in this business have not changed and are focused on high-value products and higher growth markets, including specialty dispensing technologies, medical devices and health care and pharmaceutical packaging. With greater focus and financial flexibility, dispensing solutions will be positioned to compound earnings and cash flow over time through balanced organic investments and disciplined capital deployment. Turning to Slide 23. We remain committed to our business model. Today's transaction builds and enhances our position in both Silicon MCC and dispensing solutions. The funding structure and balance sheet reallocation approach to this transaction will optimize free cash flow, allowing us increased flexibility to invest in the fastest-growing parts of our business. Taken together, we are convinced this transaction will create sustainable long-term value for shareholders. As we look forward from here, Silgan Holdings is expected to generate approximately $10 billion in sales and $1.7 billion of adjusted EBITDA, including $225 million of expected synergies, with a meaningful increase in earnings and cash flow attributable to this transaction. In closing, on Slide 24, we see this transaction as a transformative development that accelerates Silgan's portfolio evolution. It aligns the right businesses and resources around distinct opportunities and we are confident in the strategic logic of the combination with our metal packaging businesses. The flexibility and opportunities that can be realized in our dispensing solutions business and the benefits this transformative strategic structure can deliver to our customers and shareholders. With that, I'll turn it back to Katie to open the line for questions.

[Operator Instructions]. We'll take our first question from Ghansham Panjabi with Baird.

Congrats on all the activity announced this morning. I guess, first off, Adam, on Slide 11 on the future intended separation that you called out, was there any consideration to just split the company as it stands today versus the transaction and a multistep that you announced? And -- if so, why is this a better path? Is it just because of the increased scale that the stand-alone entity would give you in the future? Is that -- was that the consideration.

Sure. Thanks, Ghansham. Look, first of all, we're really excited to announce the transition here, the transaction and the creation of a premier global metal packaging platform for us, there's a couple of things to consider. So 1 of the really key elements of this transaction is that it's leverage neutral for Silgan and our shareholders did not have to deploy a meaningful amount of capital in order for us to achieve this. And we maintain our flexibility to continue to grow out the business and and execute our strategic priorities on the dispensing solutions side. So I think when we think about the timing and whether the kind of platform that we have described and the timing we've described was the right platform. We absolutely believe it is. We think the first thing we need to do, Ghansham, is bringing these businesses together. We need to deliver those synergies and we need to create that value for our shareholders. Again, we're talking at least 15% EPS accretion for our shareholders without deploying meaningful capital. And then once those the business is ready once the markets are tuned to this transaction, that's when the time for separation will occur. And we feel confident that that's the right path forward.

Great. And then as it relates to your comments on dispensing closures and the focus there in terms of growth, et cetera, just to clarify, Adam, is this -- would you look -- would you consider future acquisitions for that segment? -- as you deliver synergies associated with the transaction announced on the metal side? Or is it independent of that as it relates to big opportunistic which you have been in that segment over the past decade?

Yes. I think it's really interesting, Ghansham, because I think with the structure that we have today and the reallocation of the balance sheet, we think that dispensing solutions at close will be approximately 1.8x levered the way we're reallocating the balance sheet. So we think there's plenty of opportunities. The pipeline remains strong. So it has nothing to do with the pipeline or any other thought on dispensing solutions other than we had this really unique opportunity to create this premier global metal packaging business with Trivium. And our efforts and focus on continuing to expand the portfolio as we've been doing for the last decade and dispensing solution have not changed.

We will take our next question from George Staphos with Bank of America.

Good luck with the transaction. I had 3 questions. I'll ask them in sequence to be time efficient. Adam, I guess, did anything change in terms of how you evaluated the existing business at Silgan? Silgan has always been a holding company structure where metal basically funded the growth of dispensing. Has something changed in terms of how you view metal? Or for that matter, has the valuation you've been trading at in more recent years and its impact on your cost of equity changed how you look at the business and what you think you need to do going forward? That's number one. Two, I know the answer is going to be yes, but I want to know why. Why do you think you have the bench across the team and the appropriate cultural fit between Trivium and Silgan -- and then last, can you talk about how the composition of the synergies changes with your 3-year schedule? And just clarification, that EPS accretion, that's before the minority interest, right? So obviously, 15% would not be the number, it would be a lower number if I strip out minority.

Thanks, George. So really, no, nothing's really changed at Silgan. I mean we -- as I kind of said earlier, our strategy has really been the same since day 1. It's about building and enhancing competitively advantaged businesses in the markets we serve, and we take a lot of pride in being the best at what we do. So I think as we've been growing out our dispensing portion of the portfolio over the last decade, I think we've been pretty clear that at some point, it probably makes sense that these 2 businesses could stand on their own. You've got -- in our metal packaging portfolio, you've got an incredibly stable, high-powered cash-generative business that is of scale and of magnitude that it is a premium portfolio part of our business at Silgan. And I think what we've grown out in dispensing is a faster-growing, higher-margin part of our portfolio that just looks a little bit differently. And I think when the scale of that business got to such a point that we believe it could stand on its own 2 feet, a separation was probably likely. Clearly, I think we're -- we believe there's a dislocation in the value of the equity. So when you think about us maybe putting equity into this deal, that did not make any sense at current valuations. And I think, in our opinion, a fair valuation of Silgan's metal container business and metal packaging business at 8x in this transaction, 8.1x and tviums at 7.1x made perfect sense to us. And we've got a great partner in AIP that is completely aligned on strategy, valuation and priorities to execute. Maybe your second question, George, on kind of our bench. And I mean, we take a lot of pride in having really good teams in the field. We've got our operating portfolio companies and a small group here at Holdings, as you know. So that holdco structure has not changed. I think one of the really interesting things here about this acquisition is that as with most, you've heard us talk a long time, George, about we've known these properties for a very long time, and we're very familiar with them. I've had the great luxury of working with Tony Allott for my 22 years at Silgan. And he and I and others on our team have been looking at this business for a very long time. I'd say he probably knows it as well, if not better than anybody else. And he played a really important role for us, helping us through this process of diligence, and he's going to play an active role in overseeing and supporting management as we go forward. So he'll help pull those 2 cultures together with the rest of the Silgan team, and we're really excited to have him support the business and help bring these 2 businesses together. And I'll let Shawn cover the synergy question.

Yes. So George, thanks for the question. I mean if you look at our track record here, I think it's a proven track record on M&A and creating value and specifically capturing synergies. We've done 41 acquisitions in our history. And as we build out our Dispensing Solutions business, we've deployed $3.5 billion in M&A since 2017. And on average, we've achieved roughly a 2x multiple buydown through those transactions. And this is very consistent with that. It's around 2x multiple buy. Combined revenue for the business, you're talking a $7 billion business with Silgan MCC. So it's roughly about 2% on the synergy side. And then the deep understanding that we have around the Tribe business also helps reinforce our belief here, complemented with the extensive diligence we've done on the transaction. So we feel pretty confident about our synergy plan. It's been built from a bottom-up approach initiative by initiative. And we're pretty -- we're very highly confident that we'll be able to deliver on the magnitude and timing of that plan. With respect to the EPS question, it is after minority interest. So it does factor in the 40% AIP minority interest. And it also includes the prevailing forward curves for interest. So it reflects the current higher interest rate environment that we're in at the moment.

Respectfully, no one has a better track record of this stuff than Silgan, so we wish you well in that regard. Just composition on the synergy, that's what I was asking, like is it more SG&A upfront and then procurement? Or how does it work?

I just jump in on that. It's roughly 20% SG&A, 30% procurement and then 50% operations. And I think the way to think about that would be evenly over the 3-year period for each of those categories.

We will take our next question from Matt Roberts with Raymond James.

Congrats on the news. Shawn, I believe you just kind of front ran some of my question. You said the interest rate is based on the current curve. Any considerations with maturities that are coming due in the next couple of years? And how do you view the path of deleveraging given any other maturities coming due?

Yes. Good question. So we have flexibility with how we use the $2.3 billion. And so we will use it to pay off debt. What specific debt we pay down, I think we'll make that decision as we get closer to close. In terms of the debt itself, it is fully committed. We expect to incur $4.9 billion upon the closing, which is roughly a 4x leverage for Silgan MCC after considering the run rate synergies. And just to give you a sense of interest rate, it's probably around 7% at the prevailing forward curves today.

And then, Matt, just one thing to remember, this is leverage neutral to Silgan in consolidation to your question on deleveraging. So the combined entity will generate significant free cash flow. The Sensing Solutions business generates really good free cash flow as well, but it's leverage neutral out of the gates.

Excellent. Appreciate all the color there. Maybe on the remaining dispensing -- sorry, the existing still dispensing segment. I think Metal Closures is coming out of that. If so, what was the mix in dispensing maybe over the last 12 months and excluding that portion, how have margins and growth compared to the profile of what it will be going forward? And any dissynergies or overhead considerations that will impact the dispensing business?

Broadly speaking, we don't view it as -- I mean, number one, it's still a 60% subsidiary of Silgan. So it's under the Silgan umbrella. So we're not anticipating any dis-synergies as we think about this. And really, when you think about our flat cap closures business, it really was focused on food and beverage products. So it has growth rates that are much more similar to the growth rates that we're talking about in some of our canned food applications, et cetera. And I think Alex has a little more detail.

Yes. So the end market breakout is close to 50% on the fragrance, beauty, personal care side of the business. And then home care, lawn and garden, about 20%. Health care is north of 10%. The balance is kind of food dispensing.

We will take our next question from Ketan Mamtora with BMO Capital Markets.

Congratulations. Just on this future tax-free separation, I'm just curious what sort of operational or financial milestones that you have in mind that need to be achieved before you consider a spin? Is it more based on synergies? Is it more based on kind of where the leverage sits 2, 3 years out? How would you have us think about that?

Yes. I think the very first priority is going to be about capturing those synergies. And I think that's probably the first metric to really think about and probably the most important one as far as that ultimate separation will take place because, again, a, we're bringing the companies together. So the integration is really important, but we are laser-focused on executing these synergies and creating that value for our shareholders. And then once we've done that, we'll take a really hard look at business readiness and market conditions and move forward with the separation at the time we really do believe creates the most value for our shareholders.

Understood. And then do you have any sort of preliminary estimate for us in terms of cost to achieve these synergies?