The deadlock between International Paper and Smurfit Kappa continued yesterday after the US giant ruled out a hostile takeover move and its Dublin-based target insisted the current bid remains too low relative to other mergers in the sector.
The standoff has left the market divided on whether International Paper will submit a third offer by the June 6 deadline set by the Irish Takeover Panel (ITP). Smurfit Kappa's shares fell heavily after the Memphis-based giant insisted it would press ahead with a new bid only if it had the support of Smurfit Kappa's board.
The group's share price closed down 5.2pc to €33.66.
In a statement welcoming the 'put up or shut up' ruling from the ITP, which was designed to limit the period of uncertainty hanging over a potential target, the family-run company described International Paper's two proposals so far as "significantly below the Board's assessment of the Group's true intrinsic worth and prospects".
It characterised the latest bid, now worth €39.50 based on the US giant's share price, as "significantly below the valuations set by recent industry transactions". In January, US container board company, WestRock, agreed to pay 10 times annualised earnings to snare its smaller rival, Kapstone, setting a new benchmark in the industry.
The tie-up means WestRock will control 23pc of the North American containerboard market according to reports.
However, if International Paper agreed to pay the same multiple for Smurfit Kappa it would need to offer about €45 a share, a valuation that would ratchet up gearing levels.
Market sources have consistently pointed out the WestRock/KapStone deal was struck at a steep valuation due to the large overlap between the two businesses and argue this is not the case for a merger between International Paper, which dominates the US market and Smurfit Kappa, which commands a controlling position in the European market.
International Paper's share price fell heavily in the wake of its first offer. After its second unsuccessful approach the response from its own shareholder was more enthusiastic as it unveiled $450m a year of savings from the deal, which would cover the proposed premium.
The market has long viewed €40-a-share as the catalyst for opening up talks between the two parties, although, in March, Smurfit Kappa denied it endorsed this view.
Speaking at a Goldman Sachs Basic Materials conference in New York yesterday, Glenn Landau, IP's chief financial officer described the company's takeover move on Smurfit Kappa as "special and somewhat unique" and stressed the group was not just "ticking the box". He added "we do not need to do this deal" and claimed Smurfit Kappa was "depriving its own shareholders of this opportunity".
Smurfit Kappa's firm refusal to engage has infuriated some shareholders who claim the tactic is designed to leave International Paper unsure of the valuation sweet spot.
Despite the hardline rhetoric from both sides, many in the market believe International Paper will submit a fresh offer, arguing it is unlikely to walk away from such an attractive consolidation play.