Madison bid likely to win backing needed for Smurfit deal to proceed

Jefferson Smurfit shareholders will learn today whether the firm has secured the backing needed for the Madison Dearborn offer to go ahead. But with no signs of a last-minute rival offer, dealers and analysts said it was likely Smurfit had the backing of most shareholders. Jane O'Sullivan reports

Shares added six cents to €2.96 yesterday, suggesting the market believed the firm would get the required level of acceptances or that the offer would be extended.

Dealers said there had been brief speculation in Dublin that a rival offer might be about to emerge after trading in Smurfit ADRs was suspended in the US yesterday, pending an announcement. But it transpired that the suspension was a normal technical situation with ADRs on the day that acceptances are due.

The bid has to be accepted by more than 80 per cent of shareholders to become unconditional.

"In the absence of a higher bid, it is probable they will get 80 per cent," one analyst said. "They have put a lot of work into it."

The poor performance of equity markets of late has also made the bid more attractive and increased the odds on its acceptance, analysts noted. In tandem with second-quarter results today, Smurfit will detail the level of acceptances received by the first deadline for the offer yesterday.

"I would expect them to get close enough, in the region of the mid to high 70s, and for the offer to be extended," one dealer said.

If Smurfit does not get the required acceptances, Madison Dearborn can extend the offer period by either 14 or 21 days or can walk away from the bid.

An analyst noted that a lot had happened in equity markets since the bid was tabled but few in the market really expect Madison to abandon it, given the amount of money already spent on the offer.

The Chicago-based private equity firm 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.

Based on yesterday's price for Smurfit Stone, the theoretical value of the offer was around €3.05, leaving the shares trading at a nine-cent discount.

Last week, more than 99 per cent of the 62 per cent of shareholders who voted backed two conditions for the deal, clearing the way for it to go ahead. Many votes not cast at the e.g.m. belonged to hedge funds expected to support the offer. "If they don't accept the bid, there is no other offer on the table," one analyst said.