Smurfit Kappa's unwanted suitor, International Paper, is preparing to pitch to shareholders in the cardboard box-maker that its revised bid values the company at almost €40 per share, including the benefit of more than $450 million (€362 million) of cost savings expected from a tie-up.
The Irish multinational group said on Monday that it had received and rejected a second takeover proposal from Memphis-based International Paper within four weeks, with the latest cash-and-stock offer valuing Smurfit Kappa at €8.9 billion, or €37.54 a share. That's 3 per cent higher than the previous bid.
The revised proposal saw International Paper increase the cash component of its bid from €22 a share to €25.25. This largely offsets a decline in the value of the stock component of the previous offer in light of International Paper’s share price decline in recent weeks.
While Smurfit Kappa rejected the fresh bid, submitted last Thursday, as “failing to reflect the group’s “intrinsic value, track record and superior prospects as an independent business”, sources close to International Paper said that the earnings effect of the cost-savings target equates to at least €2 a share boost to the bid – bringing the value of the proposal to nearly €40 a share.
That is based on applying a valuation multiple to the $450 million of planned synergies.
Three Smurfit Kappa institutional investors told The Irish Times that the synergies target was higher than the $100 million to $350 million that the market had expected. International Paper's pitch that Smurfit Kappa would benefit from receiving a 15 per cent stake in the US group as part payment for a deal was helped on Monday as its share price surged by as much as 3.9 per cent in New York in early trading.
Market sources said the increase in International Paper’s share price reflected growing confidence among investors that the group was taking a disciplined financial approach to the bid and was intent on maintaining its borrowings at a level that it would hang on to its “investment-grade” credit rating.
However, the market value of Smurfit Kappa fell by 3.4 per cent in Dublin to €7.96 billion as investors fretted about the prospects of a deal being agreed.
The US group is hoping the value of the synergies will persuade Smurfit Kappa investors to put pressure on chief executive Tony Smurfit and chairman Liam O'Mahony to start talks.
However, the cost synergies target – half of which are forecast from sourcing and supply-chain savings – is not forecast to be reached for four years and it will cost the group some $570 million to achieve.
The extent of antipathy on both sides was laid bare in their separate statements on Monday.
Smurfit Kappa highlighted its rival’s “fundamentally different” culture, the “uncertain value” of its share price and potential debt burden. In an eight-page statement, International Paper spelled out how the Dublin-based group had rebuffed its overtures without any engagement.
In an unusual move at this stage in the process, the group's chief executive Mark Sutton hosted an audio webcast presentation on the merits of a deal, which is being seen by some investors as appealing to Smurfit Kappa investors as much as his own.
“We are making today’s announcement after a series of unsuccessful attempts to engage with them and following Smurfit Kappa’s rejection or our revised proposal,” Mr Sutton said on the webcast.
Mr O’Mahony said: “The board unanimously reaffirms its belief that it is in the best interests of the group’s stakeholders for Smurfit Kappa to pursue its future as an independent company, headquartered in Ireland.”
International Paper is one of the world’s largest producers of fibre-based packaging, pulp and paper, and employs some 52,000 people worldwide. Smurfit Kappa, Europe’s largest paper-packaging group, has about 46,000 employees across 35 countries in three continents.