Smurfit investors seek at least €40 a share to beat volatility
Smurfit Kappa shareholders are unlikely to support a fresh takeover offer from International Paper (IP) if it is under €40 a share, according to a number of investors in Europe's largest box maker.
A successful tilt will require a valuation buffer that offsets downward pressure on International Paper's own share price from so-called arbitrage funds that trade on the volatility surrounding large merger deals.
Arbitrage funds typically buy the target's company's stock and bet against the buyer's shares ahead of the completion of a takeover deal. IP's bid is part funded with its own shares, so Smurfit investors will demand a larger upfront valuation to compensate.
Last month, Memphis-based IP tabled a revised bid that included a 15pc increase in the cash component to €25.25 alongside 0.3028 new International Paper shares for every Smurfit share held. But the board unanimously rebuffed the overture, and insisted the interests of the company were best served by remaining independent. With International Paper left out in the cold, the market remains divided about the prospect of a third tilt.
One stakeholder argued the company was likely to walk away entirely in the absence of any fresh offer within the next few weeks.
Others pointed out the impact of the arbitrage funds. While these specialist funds are part of the market dynamic in a M&A scenario, sources argued the inevitable downward pressure on International Paper's shares presents a problem for those Smurfit investors unable to trade in US stocks.
It is understood the US company told Smurfit investors it would consider a second listing during a series of meetings in London and Paris.
But some investors said while they would accept an effective €39-a-share offer, they'd require a buffer to compensate for market volatility - meaning a headline bid closer to €41 a share.
Smurfit's share price is trading at about a 11.5pc discount to IP's offer, which is worth close to €38 a share. A number of Smurfit investors remain convinced International Paper possesses the firepower for another attempt, claiming it could lift the cash element of the bid.