Smurfit and Kappa given EC approval for merger

The European Commission has approved Jefferson Smurfit's plan to merge with Dutch firm Kappa, but says the two companies need to sell off 10 plants.

The approval partially clears the way for the creation of Smurfit Kappa, Europe's biggest paper and packaging group.

The commission said the deal, which was originally notified to its competition arm in September, had raised "serious competition concerns" in its original form. These problems related to four market segments: corrugated boxes; solid board boxes; graphic board, and solid board partitions.

The commission identified specific competition difficulties in Denmark, Sweden, France, the UK, the Republic and in the graphic board market across the European Economic Area.

Under proposals presented by Smurfit and Kappa, the two companies will sell off three corrugated box plants in Denmark, three in Sweden, one solid board box plant in the Netherlands, two graphic board plants in the Netherlands and one solid board partition business in Scotland.

The disposals will represent a very small proportion of Smurfit Kappa's overall operations, which number about 425 plants.

"The proposed remedies will remove the competition concerns and therefore maintain effective competition in all affected markets," said competition commissioner Neelie Kroes.

For its part, Jefferson Smurfit said little on the approval yesterday, simply acknowledging that the clearance would involve the disposal of a number of businesses.

The company also pointed out that the deal remains subject to a number of other conditions, including a "consultation and advisory process", with relevant employee representative organisations.

The toughest such negotiations are likely to come in the Netherlands, where the deal must be notified to the Social and Economic Council, a government advisory body that represents the interests of trade unions. Kappa has 2,500 Dutch employees.

Smurfit and Kappa hope to complete the deal before the end of this year.

Under the terms of the merger, Smurfit will take the dominant position in Smurfit Kappa. The enlarged firm will be 58.3 per cent-owned by the Irish company and Smurfit executives will occupy four of the top five positions.

Smurfit has also agreed to pay about €300 million in cash to Kappa's two private-equity shareholders: Cinven and CVC.

This cash payment is to be financed through a new credit facility, which will also refinance Smurfit's existing credit facility and Kappa's debt.

The deal has been welcomed by analysts in the sector, where overcapacity has been eating into profitability.