Interest builds in Smurfit bid

Texas Pacific Group has refused to discuss whether it will bid for Jefferson Smurfit Group. The US-based private equity fund has made preliminary approaches to the firm but was making no comment yesterday about a possible offer. The company may decide instead to join Madison Dearborn Partners in its €3.7 billion bid for the paper and packaging group. Up to seven rival private equity firms are understood to have approached the US group seeking to join its approach.

Madison Dearborn is expected to accelerate its bid while other interested parties assess their options.

Analysts said yesterday the Smurfit share price did not reflect a possible rival bid from Texas Pacific, indicating that it was seen as unlikely at this stage. The shares closed almost unchanged at the €3.16 level they rose to after the Madison Dearborn bid was announced.

Madison Dearborn now has 26 days in which to send out its offer document to shareholders, who will then have 21 days in which to accept it. The US group is not expected to wait the full 28 days to try to maintain the advantage over Texas Pacific.

Sources close to the deal said Smurfit came under considerable pressure from Madison Dearborn to progress the deal over the weekend. "There was genuine concern that we would end up with nobody," said one source.

Mr Gary McGann, the chief executive designate of Smurfit, is in the US where he is briefing institutions that own 55 per cent of the firm. A Smurfit spokesman said it was normal for Mr McGann to brief the institutions, rather than executive chairman Dr Michael Smurfit.

Dr Smurfit has yet to endorse publicly the Madison Dearborn offer, although he has committed himself to supporting it and to selling his shareholding - a pre-condition of the offer. Along with other senior management, he will participate in the buy-out and remain with the company. The management will pay up to €75 million for a 10 per cent stake. They have also been offered options on another 10 per cent.

Dr Smurfit's decision to remain in the background was noted yesterday. But under the terms of the bid, Dr Smurfit and the senior management can only withdraw their support should the bid fail or be withdrawn.

The muted reaction of the market was also attributed to the offer being priced at the low end of market expectations. Institutional investors, however, are likely to accept it in the absence of an alternative, according to Mr Liam Igoe of Goodbody Stockbrokers. The deal requires 80 per cent acceptances from shareholders to proceed.

Madison Dearborn has offered €2.15 per share plus a pro-rata distribution of the group's 29.3 per cent stake in its US associate Smurfit Stone Container Corporation. It values the Smurfit Stone distribution at €1.11 per share, based on the average price of the US group during the 20 days preceding the bid. Based on the current Smurfit Stone share price, the distribution is worth closer to €1.07 per share.

Mr Lars Kjellberg, an analyst with Credit Suisse First Boston in London, said the offer was reasonable since Madison Dearborn was a financial rather than trade buyer.

"It would likely be higher if there was an industrial buyer, because it would find some synergy benefits and it could afford to pay more, but a venture capital firm with no other industries in Europe would stretch itself to pay much more than this," he said.

If a rival bid is successful, Smurfit will have to pay up to €21.5 million in compensation to Madison Dearborn, according to the terms of the offer presented on Monday. In any event, the company will contribute €2 million towards the costs incurred by the US group in making its bid.