Transcontinental Inc. opens door to Amazon with Coveris takeover

Canada’s biggest printer says its latest deal opens the door to making amazon.com a customer as the online retail giant tries to break into the fresh-food delivery business.

Montreal-based Transcontinental Inc.’s proposed $1.32-billion purchase of Coveris Americas, announced last week, will bring on board several food suppliers that rely on Coveris for packaging, chief executive François Olivier said. Several of those suppliers are in talks with Amazon about supplying food packaging for the ecommerce platform, which could provide a new revenue stream for Transcontinental, he said.

“As Amazon increases its food offering via the internet, it’s obvious that for a company like Transcontinental, this is a major growth opportunity,” Olivier said in a telephone interview. “It’s pure upside.”

Coveris Americas, a maker of packaging such as bags, films and pouches, will bolster Transcontinental’s competitive position by giving it access to new industries such as agriculture and beverages, while expanding its reach in dairy products and pet foods. Coveris, based in Chicago, had 2017 revenue of US$966 million and about 3,100 employees.

Amazon has been struggling to crack the food and packaged goods market — an US$800-billion category still dominated by Walmart and other traditional chains. It’s now attempting to persuade brands to design their packaging and operations for the online world, which would make it easier for Amazon to ship common household goods to urban dwellers in less than an hour.

“We’re early in this game with Amazon,” Olivier said. “Maybe we can come out with innovations that meet Amazon’s expectations. It’s simpler for dry food products — things like chips, coffee or croutons. When you talk about proteins or cheese, it requires refrigerated transport. So there is plenty of work ahead.”

Olivier declined to name the Coveris Americas clients that are holding talks with Amazon or specify the revenue potential for Transcontinental. Coveris counts Kraft Heinz Co., Procter & Gamble Co. and Mars Petcare among its customers.

Coveris Americas is the biggest acquisition in Transcontinental’s 42-year history. The purchase will triple packaging ’s share of Transcontinental’s revenue to 48 per cent, helping the Canadian company offset a slump in revenue from printing newspapers and flyers. The stock had its biggest intraday jump in almost a decade on the day the deal was announced.

“This is one of the rare assets that can allow us to reach critical mass in packaging rapidly,” Olivier said. “It would have been much longer for us to build our way up.”

Even as he works to close the Coveris Americas deal this year, Olivier said Transcontinental will keep hunting for other smaller packaging transactions.

“We’re in a position to look at other deals,” Olivier said. Packaging assets routinely sell for $50 million to $200 million. “We can take part in that,” he said.

Bloomberg News

As Amazon increases its food offering via the internet, it’s obvious that for a company like Transcontinental, this is a major growth opportunity.