US firm in €140m Smurfit share sale

ONE OF packaging group Smurfit Kappa’s biggest shareholders yesterday sold half its stake in the business for €140 million.

Private equity group Madison Dearborn Partners sold 17.5 million shares in Smurfit at €8 a share, for a total of €140 million.

The shares sold amount to just under half its holding in the packaging group, which up to yesterday was over 15 per cent.

Following the sale, Madison retains 17.6 million shares in Smurfit, which represents 7.8 per cent of its issued share capital.

The deal was done in the morning. According to a statement issued by Smurfit yesterday, the shares were placed with a number of financial institutions by Dublin stockbroking firm Davy.

The company made no comment beyond that, but sources yesterday said it was likely to welcome Madison Dearborn’s move as it would boost the stock’s liquidity. The move will increase Smurfit Kappa’s free float – the proportion of its shares available to the open market – to 83 per cent from 75.1 per cent.

Madison Dearborn has been a shareholder in the packaging group since the mid-1990s. It took the business private in 2002 and subsequently merged it with Dutch rival Kappa in 2005.

That deal left Smurfit Kappa in the hands of three large private equity shareholders, Madison Dearborn, Cinven and CVC, and the group’s own management.

The three refloated the group in March 2007. Following that, Madison Dearborn held 21 per cent, while CVC and Cinven held 23 per cent between them.

Madison sold some of its stake early last year, while the other two also reduced their stakes.

Chicago-based Madison Dearborn has over $18 billion under management in six funds. One of the key areas on which it focuses is basic industries, which includes activities such as paper and packaging manufacturing.

Smurfit’s opening quote on the Dublin market yesterday was €8.10. Following the sale of the Madison Dearborn block, brokers said that it traded between €7.90 and €8. The stock ended the day at €7.90, 2.47 per cent below its opening, but still 1.3 per cent ahead of the price at which it opened on Monday, which was €7.90.

The group has been particularly active in recent weeks. On Monday, it announced that it was buying a Mexico- and US-based packaging manufacturer, Orange County Container Group (OCCG), for €260 million in cash.

It will fund the purchase from its own cash resources. It had around €500 million on its balance sheet at the end of June.

The deal will begin adding to earnings once it goes through this year, and could add around $25 million to Smurfit Kappa’s bottom line over a full 12-month period. It will also increase its share of the Mexican market to 17 per cent from 12 per cent. Mexico is the second largest market in central and south America after Brazil.

Late last week it announced that it planned to refinance €250 million in debt through a bond issue.

That followed a recent refinancing of €500 million worth of debt. That exercise will save it around €10 million a year in interest payments.

Analysts estimate the group is likely to end the year with €2.8 billion in net debt, a calculation that includes the OCCG purchase price. Smurfit Kappa supplies packaging to some of the world’s biggest companies across Europe and Latin America.

Last month it reported a jump of 40 per cent in pretax profit to €190 million for the first half of the year. Revenues rose 2 per cent to €3.68 billion. Earnings before interest, tax, depreciation and amortisation – a measure of the cash that the company generates – came in at €500 million.