One of the largest investors inBerry Global Group Inc. is calling on the packaging maker to sell some non-core businesses and use the proceeds to pay down debt to improve its stock performance.
Canyon Capital Advisors, which says it owns a 7% stake in Berry Global and is its fourth-largest holder, told Chief Executive Officer Thomas Salmon in a letter Sunday that his company’s shares are undervalued and that more needs to be done to improve returns for stockholders.
The Los Angeles-based investment firm said it has been invested in Berry for more than 15 years and believes that the company should hire bankers to help develop a plan. The goals would be to pay down debt, commit to achieving an investment grade rating, and get ahead of environmental, social and governance trends — so-called ESG issues — to correct market misconceptions about Berry’s packaging products.
“We believe Berry has acquired the global scale and innovation expertise to lead the packaging industry into a sustainable future,” Canyon Capital said in the letter, a copy of which was viewed by Bloomberg News. “However, at this point more should be done to unlock value for shareholders.”
Evansville, Indiana-based Berry makes packaging for companies that include PepsiCo Inc., Starbucks Corp., Procter & Gamble Co. and Kraft Heinz Co., according to its website. Berry’s shares have fallen about 15% over the past year to close Friday at $44.24, giving the company a market value of $5.9 billion. The Standard & Poor’s 500 stock index gained about 20% in the same time frame.
A representative for Berry wasn’t immediately available for comment.
Canyon Capital said it believes Berry took some positive steps in announcing a $500 million share buyback program in 2018 and acquiring RPC Group Plc in 2019, but needs to address debt issues to see its shares trade at similar level to peers and attract new investors. Selling off non-core businesses would help, Canyon Capital said.
Berry has total shareholder returns of negative 15.6% over the past year and negative 12.4% over the past three years while peers have returned about 14% and 27% over the same periods, Canyon Capital said. The investment firm argues this is mainly due to Berry’s large debt position, which was generated by its rapid growth through acquisitions.
“Canyon has spoken with large institutional investors in Berry’s peer group who have commented that they would like to, but cannot, own Berry’s stock with its current levels of leverage,” the firm said in the letter.
Canyon Capital also said Berry should be more vocal about efforts to address so-called ESG issues, including that plastics can mitigate food waste and compare from an environmental perspective to other materials.
“The volume growth that the company is poised to deliver should go a long way toward countering the notion that plastics are unpopular from a sustainability perspective, but more can be done to ensure that the right message is conveyed to the market on these issues,” Canyon Capital said.
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