Smurfit Kappa begins investor charm offensive as IP walks away

Smurfit Kappa pledged to redouble efforts to clarify its strategy and boost its market value, as it began a charm offensive with major investors after seeing off an attempt by US rival International Paper (IP) to take over the group.

Sources said that the company, led by chief executive Tony Smurfit, contacted a number of top shareholders after IP confirmed before a 7am deadline on Wednesday that it would not make a former offer for the Irish company, "given the lack of engagement by Smurfit Kappa's board of directors and management".

Mr Smurfit said in an interview with Bloomberg TV that the shares had been undervalued for some time and that “it’s for us now to make sure the market understands Smurfit Kappa better over the next while”.

Shares in the cardboard box-making giant have fallen by more than 9 per cent over five days before IP confirmed mounting speculation that it would not proceed with a binding offer. Smurfit Kappa’s board rejected proposals from IP in February and March and refused to enter talks, in spite of pressure from a number of shareholders, including UK asset manager Janus Henderson, a top-three shareholder with a 4.3 per cent stake.

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The FTSE 100 member’s stock edged 0.2 per cent higher to €33.32 on Wednesday, valuing it at €7.9 billion, some 16 per cent above where it was trading news of the first IP approach broke in early March.

‘Excellent shape’

Analysts at Davy, which had advised Smurfit Kappa on its defence, publishing a supportive report, in which it raised its price target on the stock to €42 from €35.

"The fundamentals of the European packaging sector are in excellent shape," said Davy analyst Barry Dixon. "Smurfit Kappa Group is the leading player in this market and therefore the most exposed to the positive dynamics. This, combined with the deep intrinsic value of its assets, points to significant hidden value and upside in the share price."

Smurfit Kappa said that the group's recently-announced €460 million deal to buy Dutch paper company Reparenco highlights how it is proceeding with its medium-term investments programme. The company said in early February, a week before IP revealed its hand, that it planned to commit €1.6 billion over the next four years on deals and investing in its own facilities.

Smurfit Kappa expects to deliver €30 million of cost savings from the Reparenco deal.

However, a fund manager invested in the stock said: “It is likely that IP could have come up with a bid of over €40 for Smurfit Kappa had it been allowed to negotiate. Smurfit Kappa now really needs to sharpen its strategy and clearly demonstrate how it is going to bridge the valuation gap [between that level and where it’s currently trading].”

IP now faces a 12-month ban from making another approach for Smurfit Kappa, after failing to make a formal offer ahead of a so-called “put up or shut up” deadline of 7am on Wednesday that had been set three weeks’ ago by the Irish Takeover Panel.

However, the Memphis-based company said that it reserved the right to make another attempt within that period under circumstances allowed by Irish takeover rules involving a public company. This includes an instance where another bidder emerged.