Smurfit Kappa bid could go hostile, investors told
US packaging giant International Paper has told major shareholders in Smurfit Kappa that it hopes to secure a friendly takeover of the Dublin-based group, but warned there were no obstacles to a hostile approach.
In a series of meetings with Smurfit Kappa investors in London and Paris this week, the Memphis-based company told them it could reduce borrowings needed to fund the deal within two years as it targets €450m of cost synergies.
Because there is relatively little overlap between International Paper and Smurfit Kappa's main markets, the US board doesn't anticipate a big regulatory hurdle to its planned deal. That is understood to mean it sees less of a need for support from the Smurfit Kappa board, emboldening it towards potentially going hostile.
If a merger faces a high bar for competition clearance, in practice joint support from both boards can help win over regulators.
According to investor sources, the Memphis-headquartered group, which received a second rejection for a sweetened bid that valued its quarry at €9.5bn and included a 15pc increase in the cash element of the offer, said it was also considering a secondary listing.
However, it is understood International Paper will pursue that course only if resistance to accepting its US shares as part consideration becomes a stumbling block.
According to David Holohan, chief investment officer with Merrion Capital, a number of investors on the Smurfit Kappa register may be unable to hold US stock and will require a dual listing to support the merger.
Others have expressed doubts about whether the issue is a serious impediment, and point out many stakeholders will exit prior to the deal's close.
A barrage of information that accompanied its revised offer has helped trigger a recovery in International Paper shares after a near 15pc fall following Smurfit Kappa's disclosure of the first bid on March 6, which has pushed the value of the offer closer to the €38-a-share mark.
By contrast Smurfit Kappa's valuation has declined since the board slammed the door on the offer for a second time.
Smurfit chairman Liam O'Mahony said the fresh tilt offered shareholders little "more than compensation for the fall in International Paper's share price since [March 6] and again entirely fails to value the group's true intrinsic business worth and future prospects".
But in its overtures to Smurfit Kappa investors this week, the US giant said it was attracted by possible revenue synergies but that it needs access to the company's books to fully assess how a union would boost earnings.
Smurfit Kappa chief executive Tony Smurfit was this week named Business Person of the Month, by 'Business and Finance Magazine'. Commenting on the revised offer from International Paper, he insisted "his first duty is towards creating shareholder value".