Sector News

Smurfit Kappa and WestRock in potential US$20B merger discussions

September 10, 2023
Chemical Value Chain

Smurfit Kappa is in discussions with WestRock to merge into what would be the world’s biggest packaging corporation. Currently rivals, the two companies would be combined under the name Smurfit WestRock and would be worth approximately US$20 billion.

The boards of each company say the tie-up would create the world’s “go-to packaging partner.”

Smurfit WestRock would be incorporated and domiciled in Ireland with global headquarters in Dublin, Ireland and North and South American operations headquartered in Georgia, US.

The potential combination would be effected through an Irish scheme of arrangement involving Smurfit Kappa and a subsidiary merger with WestRock.

If an agreement is reached, any combination would result in WestRock shareholders receiving consideration consisting primarily of shares of the combined group, according to Smurfit Kappa.

The combined market capital of the two firms would be around US$20 billion at current market prices. Over the past twelve months (until the end of June) revenue, and adjusted EBITDA were worth US$34 billion for Smurfit Kappa and US$5.5 billion for WestRock.

Costs and potential profits
According to Smurfit Kappa, the merger would target over US$400 million in pre-tax savings by the end of the first full year. The consolidation would also require an estimated one-off expense of approximately US$235 million.

Smurfit WestRock would reach 42 countries with a significant presence in Europe and the Americas.

Neither Smurfit Kappa nor WestRock has announced when they expect the merger to be completed or who will run the company. Any deal would be subject to shareholder and regulatory approval.

In 2018, Smurfit Kappa rejected an almost €9 billion (US$9.6 billion) takeover offer from US giant International Paper, saying the “unsolicited and highly opportunistic proposal” undervalued the group.

The company has its roots in 1930s Ireland, originally trading as Jefferson Smurfit. In 2005, Smurfit merged with Netherlands-based Kappa Packaging.

We have reached out to Smurfit Kappa for further comment.

Continued expansion
Industry analyst Neil Farmer, the founder and owner of Neil Farmer Associates, says that “it shouldn’t come as a surprise to those of us in the industry who track the performance and strategies of companies such as Smurfit.”

Since the failed takeover bid by International Paper, Smurfit has embarked on a series of acquisitions as it expanded its geographic footprint, including the opening in July 2023 of a new integrated state-of-the-art plant in Morocco and the acquisition of specialty packaging operations in Spain, he notes.

“Smurfit has always been ambitious and entrepreneurial. I have witnessed its rise over the last 40 years into a global player, with a London stock market listing and a €9.75 billion (US$10.4 billion) market capitalization in September 2023.”

“The drive toward the switch to paper from plastic packaging is an important consideration in the future development of the combined company`s markets,” Farmer continues.

“Smurfit Kappa alluded to a challenging macro-backdrop when it announced its half-year results to 30 June 2023, which saw volumes declining by 6% in the first half. Nevertheless, It believes there are encouraging signs, and it is confident about future prospects.”

The two companies will have 500 operations and 67 mills across 42 countries and have market shares of around 20% in boxes used by retailers and the e-commerce sector, Farmer says.

“As we have seen recently with the RPC/ Berry Global deal, post-acquisition, it is likely that consolidation and rationalization will occur over a period of time.”

“While Smurfit WestRock might give huge geographic reach, the performance of all operations will be scrutinized in minute detail to assess underperforming operations.”

A rationalization period?
Smurfit Kappa has a “good record” in its commitment to 2030 environmental targets, asserts Farmer.

“Smurfit continues to invest in sustainability and supporting the circular economy. This is likely to continue after the deal, based on my experience of the company and the sector.”

“It is inevitable, in my experience, that after a mega-deal such as this, a period of rationalization will follow in the industry.”

“Mergers and acquisitions activity, smaller deals, and disposals will inevitably happen as the industry moves into a new phase of activity.”

By Louis Gore-Langton



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