DUBLIN - Europe's largest paper and packaging producer Smurfit Kappa and U.S. rival WestRock agreed to merge on Tuesday to create the world's largest listed paper and packaging company worth nearly $20 billion
Packaging firms benefited from a boom in demand for goods and e-commerce during COVID-19 lockdowns, but have struggled to match those volumes since consumers resumed spending on services and producers started cutting back packaged stocks.
WestRock stockholders will get one share in the new company, called Smurfit WestRock, and $5 in cash for each share they hold, which works out to $43.51 per share, the companies said in a statement.
Shares in Ireland's Smurfit Kappa fell 8% in early trade to 32.9 euros, having also dropped last week when said that it was in talks with WestRock, which is the second-largest packaging company in the U.S.
Analysts at JP Morgan and Jeffries said the 36% premium being paid to WestRock's $31.88 Sept. 6 closing price was higher than most Smurfit investors were hoping for. JP Morgan said most investors it had spoken to had assumed a 15%-20% premium.
Smurfit Kappa shareholders will receive one new Smurfit WestRock share for each share they hold. They are expected to own around 50.4% of the new company following completion of the deal, expected in the second quarter of 2024.
Smurfit Kappa CEO Tony Smurfit, CFO Ken Bowles and chair Irial Finan will all assume the same roles in the new company.
The companies' had a combined adjusted core profit of $5.5 billion and revenue of about $34 billion for the year ended June 30, which would make Smurfit WestRock the largest listed global packaging group by revenue, the statement said.
Analysts at JP Morgan estimated the combined entity would have market share of around 20% in the corrugated packaging market in both Europe and North America, based on 2022 figures.
The deal is expected to be high single digit accretive to Smurfit Kappa's earnings per share before cost savings and other synergies in excess of 20%, including run-rate synergies by the end of the first full year following completion, the companies' statement added.
The combined entity will be domiciled in Ireland with its global headquarters in Dublin. It will be listed on the New York Stock Exchange.
(Reporting by Yadarisa Shabong in Bengaluru and Padraic Halpin in Dublin; Editing by Savio D'Souza and Louise Heavens)