In a monumental move within the paper and packaging industry, Europe’s largest producer, Smurfit Kappa, and its US counterpart, WestRock, have reached an agreement to merge forces, heralding the birth of the world’s largest publicly traded paper and packaging entity, valued at nearly $20 billion.
Under the terms of the merger, WestRock shareholders will be granted one share in the newly formed conglomerate, christened Smurfit WestRock, in addition to $5 in cash for each share they currently possess. The fusion comes on the heels of a period where packaging companies experienced a surge in demand due to the COVID-19 induced shift towards e-commerce and increased goods consumption during lockdowns. However, in the post-lockdown era, the sector has grappled with a decline in volumes as consumers reverted to spending on services, and producers scaled back on packaged inventories.
This development has elicited mixed responses from investors. Ireland’s Smurfit Kappa witnessed an initial dip of 8% in early trading, with shares falling to 32.9 euros. This decline follows a similar trend observed last week when news of the impending merger talks with WestRock first surfaced. Analysts from JP Morgan and Jeffries noted that the 36% premium offered above WestRock’s closing price of $31.88 on September 6th surpassed the expectations of most Smurfit investors. JP Morgan further revealed that conversations with investors had led them to anticipate a premium within the range of 15% to 20%.
Upon finalization of the deal, anticipated in the second quarter of 2024, Smurfit Kappa stakeholders will receive one fresh Smurfit WestRock share for every existing share they hold. This will translate to an estimated ownership stake of approximately 50.4% in the new company. Notably, key leadership positions will remain intact with Smurfit Kappa CEO Tony Smurfit, CFO Ken Bowles, and Chair Irial Finan assuming identical roles in the amalgamated entity.
For the fiscal year concluding on June 30, the combined companies reported an adjusted core profit of $5.5 billion and revenue reaching approximately $34 billion, positioning Smurfit WestRock as the premier globally listed packaging group by revenue. JP Morgan’s analysis suggests that, based on 2022 figures, the unified entity is poised to command a market share of roughly 20% in the corrugated packaging sector across both Europe and North America.
In terms of financial performance, the merger is anticipated to provide a boost to Smurfit Kappa’s earnings per share, expected to be high single-digit accretive, prior to factoring in cost savings and other synergies exceeding 20%. The combined entity will have its headquarters based in Dublin, Ireland, while being listed on the New York Stock Exchange, further solidifying its global presence.
Source: Reuters
