Possible Smurfit Kappa asset swap

SMURFIT KAPPA is negotiating a possible asset swap with rival paper group Mondi, it confirmed yesterday.

In a statement, Smurfit said that it was in talks with Mondi concerning a transaction that would see it acquire the South African company’s corrugated operations in Britain in return for its European sack converting operations.

Smurfit, which is Europe’s largest maker of container-board, said the transaction was subject to normal terms, conditions and regulatory clearances. It added that there was “no certainty” that a deal would be concluded.

A spokeswoman for the company said that Smurfit was not making any further comment on the deal at this point.

As no financial details have been revealed, it is unclear whether the proposed deal will take the form of a pure asset swap or whether a financial outlay will be required by either party.

According to Goodbody analyst Robert Eason, Smurfit’s sack-converting operations account for just 2 per cent of the company’s Ebitda (earnings before interest, taxes, depreciation and amortisation).

Mr Eason said the announcement suggested two things about Smurfit’s plans: “They’re trying to improve the overall efficiency of the whole business and that’s what this will do,” he said.

Secondly, after a period where the company was focused mainly on internal issues such as cost savings, it seemed that Smurfit is “now prepared to do other things”, he added.

Smurfit’s share price fell 15 cents to €6.30 yesterday in Dublin.

European and North American paper companies have been forced to shutter operations as demand for paper and pulp products fell in response to recessions in the world’s largest economies.

Before the global financial crisis struck, paper makers were battling excess capacity and low pricing power. – (Additional reporting, Bloomberg)