Hedge funds hike Smurfit Kappa positions amid takeover deal hopes

Two US funds use derivatives accumulated combined 4.74 per cent interest

Smurfit Kappa chairman Liam O’Mahony said the IP bid “entirely fails to value the group’s intrinsic business worth and prospects”. Photograph: Cyril Byrne

Smurfit Kappa chairman Liam O’Mahony said the IP bid “entirely fails to value the group’s intrinsic business worth and prospects”. Photograph: Cyril Byrne

 

Two US hedge funds, Davidson Kempner and York Capital, have accumulated a combined 4.74 per cent interest in cardboard box maker Smurfit Kappa using financial derivatives.

It comes as many investors cling on to hopes that US peer International Paper (IP) will make a third bid for Smurfit Kappa, after two previous proposals were shot down by the board of the Dublin-based group.

New York fund Davidson Kempner disclosed this week that it had had upped its exposure to Smurfit Kappa to 2.33 per cent through instruments called contracts for difference (CFDs), which allow investors to make a leveraged investment. York Capital Management also revealed earlier this month that it had a 2.41 per cent CFD stake in the group.

The two funds said in stock-exchange filings in early March that they each had 1.1 per cent positions in Smurfit Kappa, after the paper packaging company announced that it had received and rejected an initial takeover approach from Memphis-based IP.

The terms of a second cash-and-stock bid, which was also rejected in late March, currently value Smurfit Kappa’s equity at €9 billion, or about €38 per share. That reflects a deduction of Smurfit Kappa’s final dividend on 2017 earnings, which was included in the IP proposal, but actually paid out by the Irish group on Friday to shareholders.

Shares in Smurfit Kappa closed at €35.36 in Dublin on Friday.

Smurfit Kappa’s chairman, Liam O’Mahony, reiterated at the company’s annual general meeting on May 4th that the IP bid “entirely fails to value the group’s intrinsic business worth and prospects”.

Analysts at Toronto-based BMO Capital said earlier this month, after visiting management at IP, that the US company remained “keenly interested in consummating a Smurfit Kappa transaction”.

However, the company’s executives had indicated that they would be prepared to walk away by the time of IP’s next quarterly results day, at the end of July, if Smurfit Kappa had not agreed to enter merger talks, according to the BMO analysts.