Bidding frenzy looms as International Paper eyes DS Smith

UK – International Paper is currently engaged in discussions with DS Smith regarding a potential acquisition, having raised an offer exceeding £5 billion (US$6.31bn).

This move has sparked what experts are calling a ‘potential bidding war’ with Mondi.

Should International Paper’s proposal proceed, DS Smith shareholders would reportedly receive 0.1285 shares in International Paper for every DS Smith share they hold, resulting in ownership of approximately 33.8% of the combined group, compared to the 46% they would hold under Mondi.

As of the close of business on March 25, 2024, International Paper’s share price stood at US$40.85 (€37.70), indicating that the proposal represents a value of 415 pence (€4.84) per share and a premium of 48% over DS Smith’s 281-pence-per-share (€3.27) valuation on February 7, 2024 – the day before Mondi made an all-share bid of €11.7 billion to merge the companies.

Reports from Bloomberg, Financial Times, and The Times suggest that International Paper’s offer could indeed lead to a bidding war, given that Mondi’s offer represents a 33% premium and a potential combined value of over €11 billion.

Reuters also notes that DS Smith’s shares have seen a 7% increase since the buyout was proposed.

Jeffries previously reported that a merger between DS Smith and Mondi could establish an industry leader in various applications, including bag conversion, niche sack and specialty kraft paper for bags, as well as recycled and virgin containerboard for boxes.

The merger is anticipated to benefit both companies’ positions in their respective markets, introduce Mondi’s flexible packaging expertise to DS Smith, and reduce production costs for both boxes and containerboard.

International Paper believes that acquiring DS Smith would create a global leader in sustainable packaging, bolstering its position in growing markets.

The combined corrugated packaging business is expected to strengthen its European operations and expand customer offerings.

The optimization of the companies’ respective supply chains in Europe and the United States, along with the integration of mill and box networks, is projected by International Paper to enhance efficiency.

Both companies aim to leverage their management teams’ expertise to drive further developments in packaging solutions and sustainability.

The acquisition is also expected to deliver value for customers in the FMCG and e-commerce sectors, with enhancements in integration, commercial operations, and economies of scale.

Furthermore, significant value creation is anticipated for shareholders of both International Paper and DS Smith, with the maintenance of an investment-grade credit rating for the combined group.

Despite the potential benefits, it remains uncertain whether any offer will be made for DS Smith. The company has acknowledged the strategic merits and potential for value creation through a combination with International Paper, but it plans to continue talks with both bidders.

International Paper’s board maintains that the acquisition would complement its efforts to expand its European corrugated packaging business and create value for shareholders of both companies, continuing to consider M&A opportunities in a disciplined manner.

In accordance with Rule 2.6(a) of the UK Takeover Code, International Paper is required to announce its firm intention to make an offer for DS Smith by April 23, 2024, or withdraw its statement.

The company also reserves the right to introduce alternative forms of consideration or vary the composition of any offer.

Financial Times notes that International Paper had previously sought to acquire Smurfit Kappa with two takeover offers in 2018, both of which were rejected.

International Paper had been the largest listed company in its sector by sales until the merger of Smurfit Kappa and WestRock into a US$20 billion entity in September, which is set to be completed in the second quarter of 2024.

For all the latest packaging and printing industry news from Africa and the World, subscribe to our NEWSLETTER, follow us on LinkedIn and subscribe to our YouTube channel.