Smurfit-Stone shares fell sharply on Nasdaq yesterday following the announcement of its $1.4 billion (€1.39 billion) St Laurent acquisition. While Nasdaq was generally weaker on the day, the SmurfitStone shares fell more heavily than the market with the shares closing 8.64 per cent weaker at $13 7/8
In Dublin, Smurfit Group shares closed 10 cents lower at €2.40. Meanwhile, St Laurent shares rose following the announcement, gaining 1.65 Canadian dollars (€1.13 million) to reach Can$25.75 in early trading. With analysts generally comfortable with the cost of the St Laurent deal and with the signal that consolidation within the paper and packaging industry is continuing, the sharp share price fall in the US was attributed to the volume of new shares being issued to part fund the deal.
Adding new shares will dilute the interests of existing shareholders and will increase liquidity with the concern that more shares could come into the market depressing prices. Smurfit-Stone is issuing about 25 million new shares to St Laurent, a move which will dilute the group stake in Stone from a current 33 per cent to 29.5 per cent.
Another reason some analysts suggested for the fall was the switch by many investors over to technology stocks in what they described as "a wait-and-see period" for the paper and packaging sector. "We are now in a lull until April or May in terms of news flow for the sector with results, price increases and statistics already out. There is no real interest now until investors see if the industry can deliver the $50 per ton price rise," one analyst commented.
ABN Amro head of research in Dublin, Mr John Clarke, said the St Laurent deal was done at a very attractive earnings multiple compared with other recent deals in the sector. At about 4.8 times earnings before interest, depreciation tax and amortisation, the deal compares with other deals at five to six times the same measure, he commented.
The deal is expected to be immediately earnings enhancing for Smurfit-Stone but the impact on the group will be insignificant because of the dilution in its stake.
On completion of the deal, Smurfit-Stone's debt will rise to just over $6 billion and not $8 billion as reported in yesterday's Irish Times. The debt is at a level considered manageable because Smurfit-Stone's asset disposal programme is on target and its cost reduction programme is ahead of target.
