2nd UPDATE: Rio Tinto Sells Americas Food Pkg Arm For US$1.2 Billion

Rio Tinto Ltd. (RIO.AU) said Monday it will sell part of its Alcan packaging arm for US$1.2 billion, and continues to look at more asset sales to help it pay down its debt.

In a statement, London-based Rio Tinto said it will sell its Alcan food packaging arm in the Americas to Bemis Company Inc. (BMS) for US$1.2 billion, including US$1 billion cash and US$200 million worth of Bemis shares.

Debt-laden Rio Tinto first flagged the sale of the packaging arm soon after completing its US$38.1 billion takeover of Canadian aluminum producer Alcan in late 2007, as the operations didn't fit with its core strategy.

Alcan's food packaging operations in Asia and Europe remain on the block, and Rio Tinto is also looking to sell its tobacco, pharmaceutical and cosmetic packaging arms.

"The sale of the Food Americas division is the first significant step in reducing the asset portfolio acquired with Alcan," Rio Tinto Chief Financial Officer Guy Elliott said in a statement.

"The transaction represents solid value given the challenging financial environment," he said.

The company said its divestment program continues for other assets identified for sale, including the remainder of Alcan Packaging and Alcan Engineered Products.

Analysts at Citi said that the remaining packaging assets "could potentially deliver an additional US$2 billion plus, based on this sale multiple".

Australian packaging group Amcor Ltd. (AMC.AU) said earlier this year it was interested in some of Alcan's packaging operations, but didn't specify particular targets. Reports at the time speculated that it may be interested in the European packaging operations.

An Amcor representative wasn't immediately available to comment on the group's interest in the assets Monday.

Rio Tinto said it is reviewing the carrying value of the remaining Alcan packaging operations on its books, which could result in some downward revision at its half year results.

Rio Tinto, one of the world's largest producers of iron ore, copper, aluminum and other metals, has sold several businesses over the last year in advance of several looming debt maturities, including a US$8.9 billion payment due next month.

It recently completed a US$15.2 billion rights issue to raise money, and has announced divestments worth US$3.7 billion so far this year. The group has nearly US$39 billion in debt.

Last month, Rio Tinto scrapped plans for a US$19.5 billion alliance with the Aluminum Corp. of China, or Chinalco, in favor of a the rights issue to help solve its debt woes. It is also pursuing another joint venture with rival BHP Billiton (BHP.AU), which would merge their western Australian iron-ore operations.

The Americas food packaging operations sold to Bemis generated sales of around US$1.5 billion in 2008, representing around a quarter of the packaging arm's total sales, Rio Tinto said.

Bemis will acquire 23 operations spread across the U.S., Canada, Mexico, Brazil, Argentina and New Zealand that package and wrap everything from meats and cheese to bagged lettuce and snack foods.

The deal significantly boosts Bemis' role in many foods and beverages purchased in grocery stores across the U.S. The deal should push its sales from around US$3.5 billion to US$5.2 billion annually, Bemis said.

The deal is slated to close in early September.

-By Lyndal McFarland, Dow Jones Newswires; 61-3-9292-2093; lyndal.mcfarland@dowjones.com

(Ross Kelly in Sydney contributed to this article)

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