Smurfit Kappa could fetch €10bn as shares soar on US takeover bid
US packaging group International Paper could have to fork out as much as €10.1bn to buy Irish group Smurfit Kappa, after the Dublin-based company rejected out of hand an unsolicited approach.
Any successful transaction at that price tag would make a deal one of the biggest-ever takeovers of an Irish company and be as much as a 50pc premium to Smurfit Kappa's closing share price on Monday.
Shares in Smurfit Kappa soared as much as 22pc yesterday as it revealed that Memphis-based International Paper had tabled a proposal within the past two weeks.
International Paper said last night that its cash and shares proposal equates to €36.46 per Smurfit Kappa share, valuing the Irish firm at €8.6bn. But Smurfit Kappa's shareholders will certainly now anticipate an improved offer. International Paper said it remains "ready to engage" with Smurfit Kappa's board and its shareholders.
International Paper insisted its takeover would be an "excellent strategic fit" that would create long-term value for both Smurfit Kappa and International Paper.
It was "disappointed" the proposal was made public by Smurfit Kappa, the firm said.
International Paper initially contacted Smurfit Kappa on February 14, and the two companies held a meeting on February 23 regarding the proposal, the US company said.
Smurfit Kappa's shares traded as high as €35.24 each yesterday.
Investec's Gerard Moore said that based on recent peer deals Smurfit Kappa shares could conceivably be worth as much as €43 each.
"This will come down to the price," he said. "If International Paper can offer an attractive enough price, such a transaction could happen."
He conceded that €43 per Smurfit share would represent a chunky premium, and that it's the upper end of where any potential bid from International Paper could be.
"At that type of level, it might be hard for shareholders in Smurfit Kappa not to take it."
Read more: Rival offer could be vital for shareholders
But speaking to the Irish Independent, Smurfit Kappa CEO Tony Smurfit insisted that the proposal put forward by International Paper significantly undervalued the Irish firm and its prospects.
"Our shareholders have been incredibly supportive of the strategy which we've been on," he said.
"We have always said that we were an undervalued share. We have been closing that discount as we reduced our leverage and improved our performance.
"That has been a work in progress, and that's why this [proposal] is very opportunistic to try and take advantage of Smurfit Kappa before that gap has closed fully and before we've been able to start implementing the fantastic plans that we have."
Smurfit Kappa reported revenue of €8.52bn last year, and earnings before interest, tax, depreciation and amortisation of €1.24bn.
International Paper, whose chairman and CEO is Mark Sutton, had sales of $21.7bn (€17.6bn) last year, and net earnings of $2.1bn (€1.7bn).
Smurfit Kappa is Europe's largest maker of paper-based packaging material, and also has operations across Latin America. International Paper generates the bulk of its profits in North America.
Mr Smurfit insisted that the two companies' cultural differences could also be an issue.
"The culture of International Paper will be very different to Smurfit Kappa's culture," he told the Irish Independent.
"That's just the way - they're based in Memphis, Tennessee, and that's a different type of culture of an international complex company like ourselves. So, therefore, the board sees no merit in the proposed transaction that's been put forward.
"Part of the great skill of Smurfit Kappa is a kind of culture we have within the company, to have a familial type of company in a very big organisation," said Mr Smurfit.