International Paper and DS Smith 16.04.24

Today, International Paper (IP) and DS Smith announced an agreement for a recommended all-share combination, expected to close by Q4 2024.

Focused on the North American and European regions, the agreement seeks to establish a differentiated corrugated packaging company with approximately 90% of revenue from ‘sustainable’ fibre-based packaging. It also aims to integrate approximately 500-600k tons of containerboard from DS Smith into the IP mill system, which will reportedly increase the combined integration rate to approximately 90%. 

IP states that the combination will also optimize the combined network of mills, box plants, and supply chains; increase exposure to the fast-moving consumer goods (FMCG) and e-commerce segments; and aligns commitment to grow responsibly through environmental stewardship, community engagement, and strong corporate governance. 

The combination is said to have ‘substantial’ cost and optimization synergies, expected to deliver at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the close of the combination. This includes $474 million per annum of cost synergies and $241 million from operational synergies across the combined network of mills, box plants, and global supply chain. 

IP anticipates the total costs to achieve the synergies would be approximately $370 million, with approximately 33% of the synergies achieved in year one and approximately 66% achieved in year two, with 95% achieved in year three following close of the transaction. 

Apparently, the combination values each DS Smith share at 415 pence per share and will result in IP issuing 0.1285 shares for each DS Smith share. This will result in pro forma ownership of 66.3 percent for IP shareholders and 33.7 percent for DS Smith shareholders, implying a transaction value of approximately $9.9 billion. 

The company states that upon completion of the combination, any new IP shares issued to DS Smith shareholders will be authorized for primary listing on the New York Stock Exchange subject to official notice of issuance. IP also intends to seek a secondary listing of its shares on the London Stock Exchange. 

The combined company will be headquartered in Memphis, Tennessee, with plans to establish an EMEA headquarters at DS Smith’s existing London headquarters. 

Back in February, Mondi approached DS Smith with an all-share bid to buy it, with a potential merger projected to yield a combined value exceeding £10 billion (€11,714,884,660). Although no formal proposal had been made, DS Smith previously announced that it had received a highly preliminary expression of interest from Mondi. 

However, the next month International Paper’s discussions with DS Smith surrounding a potential acquisition raised an offer of over £5 billion (€5,827,700,000), and sparked a ‘potential bidding war’ with Mondi. At the time, Bloomberg, Financial Times, and The Times were 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 reported that DS Smith’s shares have increased by 7% since the buyout was proposed.

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