Smurfit Kappa bid dropped over ‘lack of engagement’

Irish packaging giant says it has ‘superior prospects’ as a standalone business

Smurfit Kappa, led by Tony Smurfit, rejected two bids from Memphis-based IP this year.

Smurfit Kappa, led by Tony Smurfit, rejected two bids from Memphis-based IP this year.

 

International Paper Company (IP) has blamed a “lack of engagement” on the part of Smurfit Kappa for its decision not to bid for the packaging giant.

The Irish Takeover Panel slapped a 12-month ban on IP making another approach for Smurfit Kappa after the US group backed off from making a binding offer before Tuesday’s deadline.

Smurfit Kappa, led by Tony Smurfit, rejected two bids from Memphis-based IP this year – in February and March – for failing to capture the group’s “intrinsic” business value and prospects. It also refused to enter into talks with its unwanted suitor.

In a note to the Irish Stock Exchange on Wednesday, IP confirmed that the company will not make an offer for Smurfit “given the lack of engagement by Smurfit Kappa’s board of directors and management”.

“In February 2018, International Paper provided representatives of Smurfit Kappa’s board of directors with a proposal to acquire the company,” it said.

“Following discussions with shareholders of both companies, IP put forward a revised proposal on March 26th, 2018.

“IP believes the revised proposal was highly attractive and formed a sound basis for engagement, which the company viewed as essential to determining the full value potential of the combination.”

IP chairman and chief executive Mark Sutton said the company would move on from the episode.

“While we continue to believe in the strategic and financial potential of this combination, our commitment was to proceed in a disciplined manner that would create value for both sets of shareholders,” he said.

“Moving forward, we remain focused on executing our strategy and are excited about our outlook. We have many levers to create shareholder value and will be responsible stewards of our shareholders’ capital.”

As a result of the announcement, IP is bound by the restrictions set out by the Irish Takeover Rules. IP said it reserves the right within the next 12 months to set aside this announcement where so permitted.

In a statement following the announcement by IP, Smurfit said it had “superior prospects” as a standalone business and “remains excited” about those prospects in the short, medium and long-term.

It said the company was implementing its medium term plan which “will enhance its operating platform for sustained growth and deliver superior performance against all operating and financial measures”.

Mr Smurfit highlighted the company’s recent acquisition of Dutch paper and recycling company Reparenco for €460 million.

“We continue to see the benefits from our investments in recent years and we are now executing a central element of our medium term plan with the acquisition of Reparenco,” he said.

“The acquisition of Reparenco will have a positive impact on our integrated model and we are targeting delivery in excess of €30 million of synergy benefits.

“Strong business conditions and a positive operating environment together with significant and early progress against our medium term plan reaffirms our confidence that 2018 earnings before interest, taxes, depreciation, and amortisation will be materially better than 2017.”

Mr Smurfit added that he expects the second quarter to represent “another strong performance” and the company would provide a further update at the time of its half year results on August 1st.

In a note, an analyst with Davy said the fundamentals of the European packaging sector are in “excellent shape”.

“Smurfit Kappa Group is the leading player in this market and therefore the most exposed to the positive dynamics,” he said.

“This, combined with the deep intrinsic value of its assets, points to significant hidden value and upside in the share price. We are increasing our price target to 4200c, 26 per cent above current levels.

“It is little wonder therefore that Smurfit’s board rejected the proposal from International Paper.”