$150m US deal by Smurfit Kappa

Packaging company Smurfit Kappa yesterday announced that it had struck a deal to acquire an American competitor for $150m (€118.24m).

Bates Container, based in Texas, will provide considerable synergies worth in excess of $11m to Smurfit Kappa.

The deal is to be financed from the company’s existing cash reserves, including an estimated further deferred payment of $7.5m, and is expected to close before the end of the year, the company said in a statement.

Commenting on the deal, Smurfit Kappa Group chief operations officer Tony Smurfit said the acquisition would complement its existing business, particularly Smurfit Kappa Orange County’s Dallas containerboard mill, which it acquired in 2012.

“This acquisition fits perfectly with our integrated model, complementing in a significant way the successful integration of Smurfit Kappa Orange County’s which was acquired in December 2012 and providing us with substantial scope for further synergies in both businesses,” he said.

“These synergies will be primarily delivered through additional integration of the containerboard needs of Bates into Smurfit Kappa Orange County’s 350,000 tonnes recycled containerboard mill, with additional savings expected througha range of operational efficiency measures.

“Importantly, the group’s enlarged packaging footprint in the US will further enhance Smurfit Kappa Group’s capacity to provide innovative, insight-led and value enhancing packaging solutions to both current and prospective customers.”

The pro forma (earnings before interest, tax, depreciation, and amortisation) is expected to be $18.5m.

Earlier this year, Smurfit Kappa reported a 79% increase in profits in the first six months of the year compared to the same period in 2013. Pre-tax profits climbed to €228m from €127m while revenue increased 1% to €3.95bn.

Davy Stockbrokers analyst Barry Dixon said that the acquisition appears to be “a very nice add-on deal” for Smurfit Kappa Group with the potential to add 2-3% to group earnings on a full year basis.

“This looks like a good use of the company’s capital and demonstrates its move to expand its business following a prolonged period of deleveraging,” Mr Dixon added.

Analysts at specialist bank, Investec meanwhile said that the deal was in line with the company’s strategy to operate as an integrated player in packaging.