US giant needs to pay €10bn to take Smurfit

By Eamon Quinn

International Paper (IP) would need to offer a knockup price for Smurfit Kappa of as much as €10bn and the share price could be in line for a further significant surge if the US giant is to bag its Irish-based international rival, according to analysts.

Shares in the Smurfit Kappa leaped almost 20% after IP made an undisclosed cash-and-shares takeover approach which was rejected by Smurfit as failing “entirely” to recognise the worth of its global operations. The company earned €1.24bn last year.

By market value, Smurfit is the third-largest Irish-controlled multinational behind CRH and Kerry. The approach by IP, whose market value of €19.8bn is over twice Smurfit’s value, has definitively put the leading Iseq and Ftse 100 company into play.

Smurfit runs its huge operations across Europe and South America from its head offices and distribution centres, employing hundreds, of staff in Dublin.

No price was disclosed but the shares jump yesterday to over €33.86 valued Smurfit at over €8.1bn.

Some estimates have it that IP would need to table €37 a share to snare Smurfit.

Gerard Moore, a leading analyst at Investec Ireland, said recent industry deals suggest IP would need to offer much more again — €43 per share — for its bid to be successful. That implies that Smurfit would sell for as much as €10bn.

“The standard advice given to shareholders in these situations is for them to hold onto the shares. That advice applies more than ever in this case,” said Mr Moore said.

The global paper and packaging industry hasn’t seen such a potential mega-deal since former chief Michael Smurfit assembled a series of huge transactions starting about 15 years ago.

A management buyout funded by US equity firms, and subsequently the acquisition of Kappa Packaging, originally from the Netherlands, meant Smurfit Kappa controlled a substantial share of the cardboard packaging market across continental Europe.

Back then, Smurfit had a small amount of manufacturing facility in Ireland and there were fears that the head office would be severly curtailed.

IP, with huge box-making facilities in the US, has very little presence in Europe, outside of Spain, and it may need to preserve the head office in Dublin to control European operations should its bid be successful.

Now run by a third generation of the family, Tony Smurfit earned €2.4m in pay, pensions, and bonuses in 2016. That was before other shares-based incentives kicked in.

Smurfit Kappa employs 45,000 staff in 35 countries around the world, has 36 mills, and owns extensive forests to produce the raw material for its paper and packaging products.

Shares in paper and packaging firms have risen in the past few years, as global growth has taken off.

Joshua Mahony, market analyst at online broker IG, said the approach for Smurfit helped boost European shares indices and other packaging shares.

“The normally unremarkable packaging sector has been the talk of the town this week, with Smurfit Kappa and DS Smith heading up the Ftse 100 gainers for the second consecutive day, “ he said. “There is a clear hope that today’s offer has signalled the beginning rather than the end of M&A activity across the sector.”


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