Smurfit Kappa shares soar as rejected approach puts box-maker in play

Smurfit Kappa shares soared on Tuesday after the cardboard box maker said it had received and rejected a "highly opportunistic" unsolicited takeover approach from US rival International Paper.

However, analysts believe that Smurfit Kappa, which was previously surrounded by International Paper merger speculation almost three years’ ago, is now in play and may attract a higher bid.

Smurfit Kappa shares jumped 18 per cent in early trading in Dublin to €33.84, giving it a market value of €8 billion.

“While the initial International Paper interest has been spurned by Smurfit Kappa, it is likely to result in a higher bid ultimately emerging,” said David Holohan, chief investment officer at Merrion Capital in Dublin.

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“Given Smurfit Kappa’s significant market leadership positions across Europe and International Paper’s more limited exposure, a combination would be a great strategic fit. The paper and packaging sector has undergone significant consolidation over the last decade, particularly in the US so it is natural for the focus to now move towards Europe.”

Smurfit Kappa, led by Tony Smurfit, said that it had “carefully considered” the cash and stock proposal but believed it to be in the “best interests of the group’s shareholders and other stakeholders” to pursue its future as an independent company. It did not outline the financial terms of the indicative International Paper approach.

Smurfit Kappa chairman Liam O’Mahony said: “The Board of Smurfit Kappa has unanimously rejected this unsolicited and highly opportunistic proposal. It does not reflect the group’s true intrinsic business worth or its prospects.

“We delivered a record performance in 2017 and underlying trading momentum has continued into 2018. The group has a proven management team which we believe will deliver significantly greater value for shareholders on a stand-alone basis.”

Smurfit Kappa recently announced record earnings before interest, tax, depreciation and amortisation for 2017 of €1.2 billion. It said the underlying positive trading conditions have continued into 2018.

As part of its year end results, Smurfit Kappa announced an acceleration of its investment programme based on plans to improve its market position and strengthen its integrated model between 2018 and 2021.

“The proposal fails entirely to reflect the group’s strong growth prospects and attractive industry outlook,” said the statement. “It would involve our shareholders receiving a high proportion of their consideration in the form of International Paper’s shares; significantly undervalues the group’s asset, franchise and replacement value; and, is significantly below the valuations set by recent industry transactions.”