Thursday 13 December 2018

US giant out to woo Smurfit shareholders as new bid fails

Tony Smurfit, the CEO of Smurfit Kappa, which is in the sights of International Paper
Tony Smurfit, the CEO of Smurfit Kappa, which is in the sights of International Paper
Mark Sutton, chairman and chief executive officer of International Paper

Gretchen Friemann

US packaging goliath International Paper plans to meet major Smurfit Kappa shareholders in London and Paris this week as it embarks on a charm offensive aimed at forcing Smurfit Kappa's board to enter takeover talks.

Yesterday the Dublin-based company, and Europe's largest cardboard box producer, delivered a stout rejection to a sweetened offer from International Paper, that included a 15pc increase in the cash component of the bid that, overall, valued Smurfit Kappa at €9.5bn.

But the renewed approach was given short shrift by the board. Chairman Liam O'Mahony characterised the fresh offer as paper-thin, dismissing it as little "more than compensation for the fall in International Paper's share price".

He said this new bid, which raised the cash component to €25.25 from a previous offer of €22, and offered 0.3 new International Paper shares, "again entirely fails to value the group's true intrinsic business worth and future prospects".

But the decision to swiftly rebuff this latest tilt has caused unease among Smurfit Kappa's investors, with a number of stakeholders reiterating their willingness to sell the stock at €38 to €39 per share - below the €40 a share price point widely considered as a catalyst for a possible deal.

The frustration built during the day as International Paper's share price steadily rose, taking the value of the bid to close to €38 a share - some distance above its original offer, tabled on March 5, of €36.46 a share.

The sharp deterioration in International Paper's market capitalisation since then - its shares have fallen by 15pc since over the past few weeks - had been attributed in part to its investors' lacklustre reception to the proposed takeover.

Yet analysts emphasised the US behemoth's peers have also slumped by 8-14pc recently following a drop in the value of the raw material used to manufacture packaging, as well as the bellicose trade rhetoric emanating from the Whitehouse, which has stoked fears of a global trade war.

If International Paper's shares traded back at $58 - their pre-bid level - the revised offer would equate to €38.90. At this valuation, investor sources argued Smurfit Kappa would need to be very confident in the support of its register to persist with its non-engagement stance.

The Memphis-headquartered firm expects to extract €450m or 5pc of Smurfit Kappa's total sales in the first four years - higher than initial market forecasts of about €300m.

In a note, David O'Brien of Goodbody Stockbrokers said the projected synergies sit "comfortably in the historical range of deals for the sector".

Smurfit Kappa's tough stance has prompted International Paper to schedule meetings with the company's key stakeholders in an effort to persuade the board to enter takeover talks.

While some in the market expect International Paper to revise its bid again, with a higher cash component, others warn the US group may attempt to gain a sizeable foothold in the stock and force the board's hand in a more hostile fashion.

Alternatively, International Paper may walk away, leaving Smurfit Kappa's shares to potentially tumble back to the pre-bid price level of €28. Smurfit Kappa's shares finished down 3.4pc to €33.56 last night. International Paper was up 3.43pc to $51.87 in late afternoon trading in the United States.

Irish Independent

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