International Paper is in discussions with DS Smith surrounding a potential acquisition, raising an offer of over £5 billion (€5,827,700,000) and sparking a ‘potential bidding war’ with Mondi.
If International Paper’s proposal were to go ahead, DS Smith shareholders would reportedly receive 0.1285 shares in International Paper for every DS Smith share they hold. As a result, they would own around 33.8% of the combined group, compared to the 46% they would hold under Mondi.
As of close of business on 25th March 2024, International Paper’s share price was $40.85 (€37.70), which would indicate that the proposal represents a value of 415 pence (€4.84) and a premium of 48% to DS Smith’s 281-pence-per-share (€3.27) on 7th February 2024 – the day before Mondi offered up a €11.7 billion all-share bid to merge the companies.
Bloomberg, Financial Times, and The Times are among the publications stating that International Paper’s offer could lead to a ‘bidding war’, with Mondi’s offer representing a 33% premium and a potential combined value of over €11 billion. Reuters also reports that DS Smith’s shares have increased by 7% since the buyout was proposed.
Jeffries previously reported that a merger between DS Smith and Mondi could result in an industry leader in such applications as bag conversion, niche sack and specialty kraft paper for bags, and both recycled and virgin containerboard in paper for boxes. It is expected to benefit both companies’ positions in their respective markets, introduce Mondi’s flexible packaging expertise to DS Smith, and cut down on production costs for both box and paper for containerboard, among other benefits.
International Paper believes that its own acquisition of DS Smith would form a global leader in the pursuit of sustainable packaging with a strong position in growing markets. In turn, the combined corrugated packaging business is expected to strengthen its European operations with increased customer offerings.
The companies’ respective supply chains in Europe and the United States could be optimized, International Paper continues, while the mill and box networks could be integrated and the paper positions could be balanced. Both industry players could offer up the market expertise of their management teams to drive further developments in packaging solutions and sustainability progress.
Furthermore, the acquisition is anticipated to drive solutions that would create value for customers in the FMCG and e-commerce sectors. Higher integration, commercial and operational enhancements, and economies of scale in sourcing, supply chain, and administration are envisioned.
Additionally, shareholders in both International Paper and DS Smith are hoped to see ‘significant’ value creation, and an investment grade credit rating is expected to be maintained as the combined group upholds a strong balance sheet.
In all, then, International Paper foresees a ‘compelling strategic and financial rationale’ for the companies to combine.
It remains uncertain whether any offer will be made for DS Smith. According to the company’s statement, it “acknowledges the strategic merits and potential for value creation through a combination with International Paper”, although it plans to continue talks with both bidders.
The International Paper Board maintains the acquisition would complement its efforts to expand its European corrugated packaging business and create value for shareowners of both companies, so it continues to consider M&A in a disciplined manner.
As per Rule 2.6(a) of the UK Takeover Code, International Paper was required to announce a firm intention to make an offer for DS Smith in line with Rule 2.7 or, if it decided not to make an offer, announce its withdrawal as a statement in accordance with Rule 2.8. Either outcome was held to a deadline of no later than 17:00 on 23rd April 2024, although the option to extend the deadline was available with the consent of the Takeover Panel in accordance with Rule 2.6(c).
Rule 2.5(a) gives International Paper the right to make an offer for DS Smith ‘on less favourable terms than those set out in this announcement’ if the DS Smith Board agrees or recommends this course of action, or if a third party announces its own firm intention to make an offer or possible offer for DS Smith with a lower value than that implied by the Exchange Ratio. International Paper also highlights its right to introduce other forms of consideration and/or vary the mix or composition of consideration for any offer.
Financial Times adds that International Paper had been the biggest listed company in its sector by sales until Smurfit Kappa and WestRock’s merger into a $20 billion company last September. The combination is set to be completed in the second quarter of the 2024 calendar year and give WestRock stockholders a total consideration equivalent to $43.51 per WestRock share.
International Paper had previously sought to purchase Smurfit Kappa with two takeover offers in 2018, although both were rejected.
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