Rio Tinto sells US packaging unit for $1.2bn

Divestment planned soon after Alcan acquisition was delayed by downturn

Fresh from last week's successful $15.2bn (£9.4bn) rights issue, Rio Tinto yesterday announced the sale of parts of its US food packaging business for $1.2bn.

The sale – to the US food and drink packing specialist Bemis – will raise $1bn in cash and another $200m in shares. Alongside last week's equity raising, and a string of other asset sales, the move is another step in Rio's strategy to pay down the $39bn debt pile accrued from its top-of-the-market purchase of Alcan in 2007.

Guy Elliott, Rio Tinto's chief financial officer, said: "The sale of the Food Americas division is the first significant step in reducing the asset portfolio acquired with Alcan. The transaction represents solid value given the challenging financial environment. We believe this is a positive outcome for Food Americas as it is a good fit with Bemis's business and stands to benefit from an excellent platform for growth and development in the regional food sectors in the Americas."

After the Alcan purchase, dual London and Sydney-listed Rio Tinto had planned to sell the group's non-core packaging operations straight away. But the financial crisis ripped the bottom out of commodities markets and Rio's divestment plans ran aground.

With $8.9bn-worth of debt repayments looming this year and another $10bn next, Rio launched the ill-fated $19.5bn tie-up with the Chinese giant Chinalco. But the plan was finally abandoned last month after shareholders baulked at the proposal to raise Chinalco's stake to 18 per cent of the company and give it slices of between 15 and 50 per cent of a range of Rio's core assets, including the Hamersley iron ore mine.

Buoyed by steadily rising commodities prices and early signs of recovery in key economies such as China, Rio Tinto launched a rights issue which was taken up by 97 per cent of British shareholders and 95 per cent of their Australian counterparts.

The company has also made another $3.7bn-worth of divestments so far this year, with sales including a Chinese aluminium smelter, iron ore and potash assets in Brazil and a coal mine in Wyoming.

The sale of Alcan's Food Americas packaging business to Bemis is expected to be completed in September, subject to the necessary regulatory approval. Rio is left with Alcan's European food packaging division still to sell, as well as its global tobacco, pharmaceutical, and beauty products packaging businesses. Analysts estimate a combined price of upwards of $2bn.

Food Americas saw revenues of $1.5bn last year, which is about 23 per cent of Alcan packaging's total.