Smurfit Kappa slides most since Brexit vote as deal hopes fade

Shares in Smurfit Kappa slid by as much as 7.5 per cent in London on Monday as hopes faded that its unwanted US suitor would make a third takeover proposal ahead of a bid deadline this week.

An investor in Smurfit Kappa said that sentiment towards the company was not helped as it emerged that UK rival DS Smith had agreed to buy Spanish cardboard box-maker Europac for €1.9 billion, saying that this was a sizeable miss for the Irish company.

The 7.5 per cent slump in the value of Smurfit Kappa on Monday was the largest single-day blow for the company’s shares since markets globally were rattled almost two years’ ago by the Brexit vote. The shares closed off their lows in London at £28.80, valuing the group at £6.83 billion (€7.78bn). The Irish Stock Exchange was closed for the June Bank Holiday.

Sources familiar with the situation said that, as of close of business in Europe on Monday, International Paper (IP) had not sought to engage with Smurfit Kappa on submitting another takeover attempt. It faces a 7am deadline on Wednesday from the Irish Takeover Panel to announce a binding bid.

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IP, which has said it would only proceed with an offer with full backing from Smurfit Kappa’s board, faces a 12-month ban from mounting another approach if it does not make a firm bid by the deadline.

Smurfit Kappa had rejected two bids earlier this year as failing to capture its “intrinsic” value or future prospects.

Four years

The removal of IP from the picture would allow Smurfit Kappa to proceed with its own plan to spend up to €1.6 billion over the next four years investing in deals and its own facilities. The group made headway on this late last month by agreeing to buy Dutch paper and recycling company Reparenco for €460 million.

DS Smith’s move to buy Europac comes as demand for paper-based packaging is being driven by a boom in internet shopping and environmental concerns about the use of plastic.

DS Smith acquired Interstate Resources of the US last year for about $1.1 billion (€940m). Elsewhere, US packaging company WestRock agreed in January to buy rival KapStone Paper and Packaging for about $3.5 billion, a year after snapping up Multi Packaging Solutions for $1.4 billion.

South Africa's Mondi has also been active on the acquisitions trail in the past year, completing its €365 million purchase of Finnish paper company Powerflute last week. Powerflute was once part-owned by Michael Smurfit and Dermot Smurfit.

The enterprise value of the Europac transaction – at 12 times the Spanish group’s 2017 earnings, excluding the expected impact of cost-savings from the tie-up – is at a premium of IP’s second offer for Smurfit Kappa in late March. That bid was the equivalent of 9.7 times earnings before interest, tax, depreciation and amortisation (Ebitda), excluding the expected impact from cost savings arising from a merger.

Potential deal

However, IP has bemoaned the decision by Smurfit Kappa’s board, led by Liam O’Mahony, to refuse to engage in a potential deal. The US group had indicated that it could sweeten the terms and amount of its proposal if the Irish company entered talks and sought to work together on increasing the value of $450 million (€385m) of cost savings it had estimated could be squeezed out of a merger.

Meanwhile, UK financial publication City A.M. has suggested that Mondi, also listed on the FTSE, may become interested in Smurfit Kappa as the company has appointed bankers to scout for more deals.