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Citi Analyst OKs Ball Corp Acquisition, But Remains Skeptical Of Synergy Gains

Citi Analyst OKs Ball Corp Acquisition, But Remains Skeptical Of Synergy Gains - Ball Corporation NYSE:BLL

Citi resumes coverage of Ball Corporation BLL 0.35% with a Neutral rating and $77 target price following the $8.5 billion acquisition of Rexam Plc (ADRs previously traded under REXMY on the OTC) and $3.4 billion divestiture of assets.

"While we think the merger was strategically sound and will significantly upgrade Ball's global portfolio (especially in Europe, Middle East and Africa), we'd like a more attractive entry point and greater clarity on $300 million plus of deal synergies Ball expects to realize, before taking a position," analyst Anthony Pettinari wrote in a note.

The analyst has conservatively modeled $250 million in synergies by year-end 2018. However, he wonders how Ball will realize "procurement savings from a highly consolidated supplier base" without losing said savings to its consolidating customer base, especially given the "limited geographical overlap of the acquired assets."

The company is scheduled to participate in six investor conferences this fall, and will hold an Analyst Day in December, its first since 2013. These appearances will be closely watched as investors gauge confidence in Rexam synergies and the progress of the 90-day review.

"We'll also look for any changes in the commercial environment given significant industry changes over the past year, such as a potential ABI-SAB merger, new competitor entries into beverage cans, capacity adds from CanPack & MCC and potential for post-merger market share shift," Pettinari noted.

Shares of Ball were trading at $70.69, down 0.32 percent at time of writing.

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