Australian packaging group Amcor Ltd is set to raise about A$1.6 billion ($1.3 billion) in equity to help fund a purchase of Rio Tinto's Alcan packaging unit, sources said on Monday.
Amcor halted trading in its shares on Monday, saying it would make an announcement concerning the outcome of talks on an acquisition, but gave no more details.
Amcor, which has been widely tipped as a buyer of the packaging unit, will pay a total of A$2.4 billion, raising a further A$800 million in debt, Australian media reported.
The deal is a key leg in Rio's efforts to pay down its hefty debt burden. The world's second-largest miner two years ago targeted $15 billion in asset sales to help cut debt after buying the Alcan aluminum business at the height of the commodities market boom.
However, the global financial crisis has seen Rio struggle to make sales at acceptable prices, and in June it announced a $15.2 billion rights issue after ditching a $19.5 billion tie up with Chinese firm Chinalco.
It's positive for Rio, said Steven Robinson, senior investment manager at Alleron Investment Management, who also owns Rio stocks. It is part of their strategy to reduce debt.
He said Alcan's packaging units were not part of their core assets over the long term.
Two sources with direct knowledge of the matter told Reuters Amcor was expected to announce a capital raising of about A$1.6 billion to partly fund the acquisition.
JP Morgan (JPM.N), UBS (UBSN.VX), Deutsche Bank DBKG.DE, Commsec (CBA.AX) were joint lead managers to the share sale, according to one of the sources.
The sources declined to be named because the deal has not yet been made public.
An Amcor spokesman did not return calls seeking comment.
The Australian Financial Review reported that Amcor could also raise A$800 million in debt to fund the deal.
The deal is likely to make the firm a dominant player in flexible food packaging and tobacco packaging in Europe.
RBS said in a report last week that an acquisition of the Alcan packaging assets would be positive for Amcor's share price.
The company is due to report annual results this week, with analysts expecting a net profit before one-offs of A$361 million for the full year, down from A$369.1 million a year ago.
($1=1.215 Australian Dollar)
(Reporting by Denny Thomas and Saeed Azhar; Editing by James Thornhill and Lincoln Feast)