Ireland's Smurfit Kappa and US rival WestRock have agreed to merge, creating the world's largest listed paper and packaging company, worth nearly $20 billion (€18.7 billion).
WestRock stockholders will get one share in the new company, called Smurfit WestRock, and $5 in cash for each share they hold, which works out to $43.51 per share (€40.6), the companies said in a statement.
Analysts at JP Morgan and Jefferies questioned the 36% premium to WestRock's $31.88 closing price on 6 September – the day before the talks were disclosed. JP Morgan said most investors it had spoken to had assumed a 15% to 20% premium.
Smurfit Kappa CEO Tony Smurfit, who will assume the same role in the new company alongside his CFO Ken Bowles and chair Irial Finan, called the deal "a defining moment within the global packaging industry".
In addition, Smurfit Kappa shareholders will receive one new Smurfit WestRock share for each share they hold. They are expected to own around 50.4% of the new company following completion of the deal, expected in the second quarter of 2024.
COVID-19 Hangover
Packaging firms benefited from a boom in demand for goods and e-commerce during COVID-19 lockdowns, but have struggled to match those volumes since consumers resumed spending on services and producers started cutting back packaged stocks.
Smurfit, which operates in 22 European countries and 13 in South, Central and North America, reported a fall in first-half core profit last month as it struggled to offset the decline in volumes.
However it said that the first increase in shipments of its boxes in Europe in a year suggested inventory reductions by customers were coming to an end and that there will be scope to increase box prices again as demand recovers.
While WestRock beat Wall Street expectations for third-quarter profit, it said it remained focused on streamlining its portfolio and further reducing costs.
The Merged Entity
JP Morgan estimated the combined entity would have market shares of around 20% in the corrugated packaging market in Europe and North America, where WestRock is the second-largest player.
The companies' had a combined adjusted core profit of $5.5 billion and revenue of about $34 billion (€31.7 billion) for the year ended 30 June, which would make Smurfit WestRock the largest listed global packaging group by revenue, the companies' statement said.
The combined entity will target pre-tax cost savings of more than $400 million (€373 million) at the end of the first full year following completion at a one-off cash cost of around $235 million (€219.1 million).
That could make the deal more than 20% accretive to Smurfit Kappa's earnings per share, the statement added.
Smurfit WestRock will be domiciled in low tax Ireland with its global headquarters in Dublin. It will be listed in New York and also have a standard listing on the London Stock Exchange.
Smurfit Kappa will de-list from Euronext Dublin, the latest blow for the Irish bourse as building materials giant CRH prepares to leave later this month.
