Smurfit’s unwanted suitor faces pressure to boost shareholder rights

International Paper’s proposal would leave shareholders with 15% stake in a combined group

International Paper is seeking to acquire Smurfit Kappa in a cash and stock transaction. Photograph: Luke Mac Gregor/Bloomberg

International Paper is seeking to acquire Smurfit Kappa in a cash and stock transaction. Photograph: Luke Mac Gregor/Bloomberg

 

US packaging giant International Paper, which is circling Dublin-based peer Smurfit Kappa, is coming under pressure to boost shareholder rights and the accountability of its board.

The Memphis-based company’s board is recommending that investors reject a shareholder proposal that it be obliged to convene an extraordinary general meeting if holders of at least 10 per cent of its stock call for one. The threshold is currently 20 per cent at International Paper, double of that at Smurfit Kappa, in accordance with Irish company law.

However, two influential corporate governance advisory firms relied on by major institutional investors – Institutional Shareholder Services (ISS) and Glass Lewis – have called on shareholders to vote in favour of the motion at International Paper’s upcoming annual general meeting (agm) on May 7th in defiance of the company’s stance.

It comes at a time when International Paper is seeking to acquire Smurfit Kappa in a cash and stock transaction, which currently values the group at €9.08 billion, or €38.30 per share, including a final dividend owned on the Irish group’s 2017’s earnings. The proposal, which has been rejected by Smurfit Kappa for failing to reflect the group’s “intrinsic value”, would leave shareholders in Ireland’s first multinational company with a 15 per cent stake in a combined group.

Accountability

ISS believes that the lower 10 per cent threshold is reasonable and in the best interests for shareholders, and that it will help to increase the accountability of the board and management,” said ISS in a report circulated to clients ahead of the agm.

The proxy advisory firm noted with International Paper’s main shareholder, Wellington Management, holding just over 9 per cent of the stock, followed by Vanguard, at 7.2 per cent, “no single shareholder would be able to act unilaterally to call a special meeting at the proposed threshold”.

International Paper, led by chairman and chief executive Mark Sutton, has said it believed the existing shareholder right to call a special meeting “strikes the right balance”, as convening a gathering “imposes significant costs”. It added that the time taken to prepare a meeting would distract management from running the business and “enhancing returns for all shareholders”.

Proposal

However, Glass Lewis, in advising investors to ignore the board of International Paper’s recommendation and vote in favour of the proposal, said: “Given the size and shareholder base, we believe that a 10 per cent threshold is more appropriate.”

There is an expectation among Smurfit Kappa shareholders that International Paper, which was first rumoured three years’ ago have the Irish group in its sights, will come back with a third proposal.