Deals: QBE/Amcor Expand

Insurance giant QBE (ASX: QBE) and packing multi national yesterday announced expansion deals valued at more than $600 million in Australia, Asia and South America.

Fresh after raising $450 million in new capital two weeks ago, QBE yesterday confirmed that it will pay $US420 million to acquire parts of HSBC's general insurance businesses in Hong Kong and Argentina.

And Amcor, which reported a solid rise in interim profit, revealed that it plans to pay nearly $240 million to expand its flexible packaging business in Asia a deal that needs the approval of the ACCC.

The QBE deal was suggested last week and sees the insurer, which reported weak full year results for 2012, becoming the exclusive provider of HSBC's general insurance customers to the bank's customers in Argentina and customers of HSBC's part-owned Hang Seng Bank in Hong Kong and mainland China. That deal will be for 10 years.

QBE said yesterday it is buying businesses with tangible assets of almost $US190 million.

Premium revenue for the first full year will be $US450 million for the Argentinean business and $US75 million in Hong Kong.

Combined, the two businesses are expected to add $US40 million to QBE's annual profit and make a positive contribution to the insurer's earnings per share in the first full year. (That $US40 million is more than the $US31 million QBE earned in the six months to December, 2011).

QBE chief executive Frank O'Halloran said in a statement the two businesses were ''highly profitable''.

"These fit well with our strategic objectives of profitable growth in the fast growing economies of Asia and Latin America. They will also provide opportunities for synergies," Mr O'Halloran said.

These purchases come off the back of QBE buying Puerto Rican insurer Optima Group, an underwriter with around $US100 million in gross written premium annually.

QBE acquired three businesses last year that gave the insurer more than $US2.6 billion in additional premium revenue.

The latest transactions are expected to be finalised by the middle of this year, QBE said in yesterday's statement.

QBE said it would fund the purchases from internal resources.

Last week it finished raising $450 million in new capital from big shareholders and will ask smaller shareholders if they want to add another $150 million to that figure.

QBE shares rose 12c to $11.94 in a market that fell more than 1% over the day.

And Amcor said yesterday that it would pay $238 million for Aperio Group, a rival flexibles packaging group operating here and in Thailand.

The move will boost Amcor's annual revenues in the sector to $1.2 billion, provided the deal wins ACCC approval.

The Commission has said it will announce its decision by March 29.

But the deal looks likely to cut competition in Australia.

Amcor currently has 43% of the domestic flexibles market in Australia and the purchase of Aperio and its 20% will lift Amcor's control to more than 60%, a level that will worry the ACCC.

The deal is likely to see job losses among the 550 employees of Aperio as Amcor looks to generate cost savings in the integration of the two businesses.

So it wouldn't surprise to see this deal delayed, like the Foxtel bid for Austar has been delayed by the Commission's competition concerns.

The privately owned Aperio operates 13 sites in the flexibles packaging sector in Australia, NZ and Thailand, adding to Amcor's existing 21 sites throughout Asia and the Pacific.

Aperio has annual revenue of about $350 million, Amcor said.

The purchase will bring with it significant operational benefits and cost savings, while Amcor pointed to the added boost Aperio will give to its innovation capabilities, along with additional "scale and breadth of technologies", Amcor said yesterday.

"This is an important strategic opportunity for our Asia Pacific flexible packaging business," Amcor managing director Mr Ken MacKenzie said in the statement.

"The acquisition of the Aperio Group will enable us to deliver an improved offering to customers, particularly through innovation."

Amcor said the purchase would be paid for from existing facilities, and would boost earnings before interest, taxation, depreciation and amortisation (EBITDA) by $40 million a year.

Net synergy benefits are estimated at $25 million, with the net cash cost to achieve these synergies also $25 million, it said.

Inclusive of capital spending synergies, the purchase is expected to deliver a return on investment of more than 20% by the third year after the acquisition, Amcor said.

Amcor shares rose 14c to $6.94 yesterday in a market which fell more than 1%.