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Boom Times for Online Shopping Stoking Mega Packaging Bid

Updated on
  • International Paper bid for Smurfit valued at $10.7 billion
  • Combining companies would be largest paper-packaging deal

The global online shopping boom is prodding the packaging industry into one of its biggest-ever takeovers.

International Paper Co., the largest paper company, confirmed Tuesday it made an unsolicited 8.6 billion-euro ($10.7 billion) bid for Ireland’s Smurfit Kappa Group Plc. Its proposal was rejected as being too low, but the U.S. company said it remains willing to engage in deal talks.

International Paper makes one in three cardboard boxes in the U.S. and purchasing Smurfit would make it the No. 1 producer in Europe. The transaction would rank as the second-largest deal in the cardboard-packaging and paper-products industries, second only to Koch Industries Inc.’s acquisition of Georgia-Pacific LLC in 2005 for about $12.6 billion, according to data compiled by Bloomberg.

“Overnight, you’d create the top producer of containerboard in Europe, North America and South America," Goodbody Stockbrokers analyst David O’Brien said by phone from Dublin.

The industry has seen a wave of consolidation as demand for packaging is boosted by global economic growth and the rise in online shopping. The market for containerboard, as the material is known in the industry, is also being supported by the minimal amount of new supply coming online, according to analysts at Bloomberg Intelligence.

Other Deals

U.S. producer WestRock Co. agreed to buy KapStone Paper & Packaging earlier this year for about $3.4 billion while South Africa’s Mondi Ltd. and DS Smith Plc of the U.K. both completed deals in the past six months. So far in 2018, there have been 44 cardboard-packaging and paper-product deals, including the bid for Smurfit, with an aggregate value of $22.1 billion, according to the Bloomberg data.

Memphis, Tennessee-based International Paper said it approached Smurfit last month to request a meeting, at which it subsequently proposed its 36.46-euro-per-share cash-and-stock bid. Combining the companies would better serve customers while also creating cost savings, it said.

Smurfit disclosed the proposed transaction early Tuesday when it issued a statement explaining the reasons why it was rejecting the approach. The bid, it said, is “fundamentally opportunistic” and “significantly undervalues” the company. Dublin-based Smurfit added that it plans about 1.6 billion euros in capital investment for internal and external growth and is committed to the steady acceleration of dividend payments.

‘Not the End’

“International Paper is disappointed that this was made public this morning, prior to further engagement between the parties to discuss the value creation potential of the transaction,” the U.S. company said in its own statement.

Smurfit shares closed up 18 percent at 33.86 euros in Dublin, a record gain, and traded a further 3.5 percent higher at 35.06 euros as of 11 a.m. local time Wednesday. International Paper fell 2.1 percent to $57.70 in New York Tuesday.

“This is not likely to be the end of the game; speculation will build from here,” said Gerard Moore, an analyst at Investec in Dublin. “If the deal had happened, or does happen, it would be transformational for the industry.”

— With assistance by Dara Doyle

(Updates with Smurfit share price in penultimate paragraph.)
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