Smurfit Kappa rejects offer from International Paper

Smurfit Kappa rejects offer from International Paper

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Europe’s largest cardboard box maker Smurfit Kappa has rejected an unsolicited cash and shares offer from International Paper of the US, describing the approach as “fundamentally opportunistic and conditional”.

The Dublin-based company did not disclose the value of the bid but said on Tuesday that the proposal “fails entirely to reflect the group’s strong growth prospects and attractive industry outlook”.

Smurfit Kappa has an enterprise value of about €9.8bn, according to FactSet data.

The FTSE 100 company’s shares rose by almost a fifth to £30.20 in London and €33.82 in Dublin.

The proposal from International Paper, the world’s biggest paper company by sales, comprised “a combination of cash and a minority holding in the combined business”, said Smurfit Kappa.

Liam O’Mahony, chairman, said: “The board of Smurfit Kappa has unanimously rejected this unsolicited and highly opportunistic proposal. It does not reflect the group’s true intrinsic business worth or its prospects.”

He added that the company had a “proven management team which we believe will deliver significantly greater value for shareholders on a stand-alone basis”.

Tony Smurfit, chief executive, said: “Obviously the board have to view everything as it comes up.”

Mr Smurfit, grandson of the company founder, told the Financial Times: “There is a lot of momentum in our business. International Paper have been opportunistic in trying to get in before a lot of our plans are developing.”

Sales of corrugated, the product cardboard boxes are made from, increased 4.4 per cent globally in 2017 and were more than 3 per cent higher in Europe.

In February, Smurfit Kappa announced annual sales of €8.6bn, up 5 per cent from 2016, but profits were hit by higher raw material costs.

Justin Jordan, analyst with Jefferies stockbrokers in London, said: “Given the strategic value of Smurfit Kappa and potential synergies with existing International Paper operations, we believe an offer €33 of a share would be a realistic possibility to start discussions.”

Mike van Dulken, head of research at Accendo Markets, noted that shares in all paper and packaging companies were higher on Tuesday “based on hopes of consolidation in the packaging sector”, and amid global efforts to reduce the amount of plastic used by consumers.

Smurfit Kappa has about 18 per cent of the European cardboard packaging Market and a smaller pan-American presence, including operations in Mexico, Brazil and Columbia.

International Paper, a company three times Smurfit Kappa’s size by Market capitalisation, has almost a third of the US Market and a 4 per cent European Market share with mills in Spain and Italy.

David O’Brien, head of industrials research at Goodbody in Dublin, said a combination of the two groups made sense strategically “given complementary businesses in Latin America and the opportunity for International Paper to build on what is its small position in Europe.”

But he said Smurfit Kappa’s rejection was firmly-worded. “The fact that the line is there that this statement is put out with International Paper’s knowledge shows they are fairly resolute,” he said.

“Unusually we don’t have a sense of what the valuation is that International Paper have placed on the company. Indeed we don’t know the structure of the deal they’re proposing.”

Gerard Moore, equity analyst at Investec in Dublin, said a January deal in which packaging company WestRock acquired Kapstone was carried out at a multiple of 11.3 times earnings before interest, tax, depreciation and amortisation. “If you applied this 11.3 times multiple to Smurfit Kappa‘s 2017 ebtida the implied share price would be €43.00, 50 per cent above the level before Smurfit’s statement,” he said.

“There is clearly outside interest in Smurfit Kappa. Having said that, the list of other potential suitors is not endless.”

On Monday, before the announcement of the approach, Goldman Sachs raised its target price for Smurfit Kappa shares from £27 to £30.

Smurfit Kappa was created by Jefferson Smurfit’s 2004 merger with Dutch rival Kappa Industries. The new company returned to the public Markets in 2007 after a period owned by Madison Dearborn, the US private equity company.

There was no immediate comment from International Paper.


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