European paper and packaging firm Smurfit Kappa has said that it is in discussions to merge with U.S. paper company WestRock.
The combined entity would be named Smurfit WestRock and will be domiciled in Ireland with its global headquarters in Dublin. The company did not disclose any financial details of the deal.
The combined group would see the coming together of 'two highly complementary portfolios to create a global leader in sustainable packaging', with an 'unparalleled geographic reach across 42 countries', Smurfit Kappa said in a statement.
Value Of Deal
The Wall Street Journal, which first reported the merger, said the combined entity could be worth about $20 billion (€18.66 billion)
Smurfit Kappa said the combined entity could log pre-tax cost synergies of more than $400 million on an annual run-rate basis at the end of the first year following the completion of the deal.
Smurfit Kappa, which operates in 22 European countries and 13 in South, Central and North America, benefited from a boom in demand for packaging goods and e-commerce during COVID-19 lockdowns, but suffered a setback when economies reopened and producers started cutting back packaging stocks.
The Irish group last month reported a fall in first half core profit as it struggled to offset a year-on-year decline in volumes.
WestRock Focus
While WestRock, which is the second largest packaging company in the U.S., beat Wall Street expectations for third-quarter profit and said that it remains 'focused' on streamlining its portfolio and further reducing costs.
After the deal's close, the combined entity's shares would be listed on the New York Stock Exchange (NYSE), the company said, while Smurfit Kappa would de-list from Euronext Dublin.
The two firms have 'complementary portfolios with unique product diversity and innovative sustainability capabilities, with breadth and depth across renewable, recyclable and biodegradable packaging solutions', Smurfit Kappa said.
Analyst Viewpoint
Commenting on the potential coming together of Smurfit Kappa and WestRock, Benher Gracio, business fundamentals analyst at GlobalData, said, “A potential merger of Smurfit Kappa and WestRock will see the emergence of a top global paper and packaging player with strong operational synergies, as the two companies have identical business models.
“For both companies, corrugated packaging is the mainstay with strong market positions. In terms of production volume, Smurfit Kappa holds a leadership position in Europe and to boot, it has a significant presence in Latin America as well. While WestRock has a strong manufacturing presence with 145 facilities primarily concentrated in the Americas, Smurfit Kappa has over 350 facilities, with the majority of them located in 23 European countries, but with a sizeable presence in the Americas with close to 100 facilities in 13 countries."
Gracio added that Smurfit Kappa has been on an "expansion spree" recently, building a foothold in new markets such as Morocco. As a result, the possible combined entity "will have an impregnable presence in over 40 countries across the Americas and Europe, with about 500 converting facilities and over 60 mills.
"This is robust, given that the industry’s top player, International Paper Co., has just about 220+ facilities and 28 mills, which will further widen the gap at the top of the pile."
Additional reporting by ESM
