DS Smith Plc (SMDS) agreed to buy a packaging business from Swedish tissue maker Svenska Cellulosa AB (SCAB) for 1.6 billion euros ($2 billion) to become Europe’s largest supplier of recycled cartons for consumer goods.
DS Smith plans a rights offering to raise 466 million pounds ($717 million) to help finance the purchase, the London- based company said in a statement today. It will also use existing and additional debt.
“SCA Packaging is a well-invested business with long positions in recycling and packaging and short paper capacity that is very complementary to our strengths,” DS Smith Chief Executive Officer Miles Roberts said in today’s statement.
The acquisition follows DS Smith’s purchase of a controlling stake in French packagers Otor SA (OTOR) in 2010. SCA Packaging is the second-largest packaging business in Europe and will provide DS Smith with access to “new geographical markets across continental Europe” and “substantially” improve earnings per share, the British company said.
DS Smith rose as much as 8 percent in London trading, the sharpest gain in almost seven months, and was up 2.2 percent at 208 pence at 8:13 a.m. Svenska Cellulosa surged as much as 8.6 percent, the most since July 2010, and was up 7.7 percent in Stockholm.
SCA Unit Earnings
The packaging operations, excluding two kraftliner mills that aren’t included in the purchase, had net revenue of about 24.2 billion kronor ($3.49 billion) in 2010 and operating profit excluding restructuring costs of about 1.1 billion kronor, SCA said in a statement.
DS Smith proposes to issue nine new ordinary shares for every eight existing shares, it said. The purchase price is equal to a multiple of 6.3 times 12-month earnings before interest, taxes, depreciation and amortization, SCA said.
The purchase will give DS Smith an expected return on capital above its weighted average cost of capital for the first full financial year of ownership with further improvement in the second and third years, the company said.
DS Smith said its net debt should return to 2 times Ebitda by the end of the first full financial year after the deal is completed. Standard Life Investments Ltd., the U.K. company’s largest shareholder, supports the acquisition, DS Smith said.
The purchase is expected to close in the second quarter of this calendar year, DS Smith said.
For SCA, the sale will “enable increased growth in the hygiene business,” Chief Executive Officer Jan Johansson said in a separate statement. SCA plans acquisitions in that area, he said on a conference call.
To contact the editor responsible for this story: David Risser at firstname.lastname@example.org