Smurfit Kappa Dutch deal piles pressure on unwanted US suitor

Cardboard packaging manufacturer Smurfit Kappa has struck €460 million Dutch deal, continuing its own mergers and acquisitions strategy after twice rebuffing two takeover proposals from US rival International Paper (IP) in recent months.

The move comes even as Smurfit Kappa faces mounting shareholder pressure to enter tie-up talks with IP as the Memphis-based group has only two weeks left to announce a binding offer for Ireland’s first multinational company. The Irish Takeover Panel moved last week to impose a June 6th bid deadline on IP or face the prospect of being banned for 12 months from making another approach.

Smurfit Kappa said on Thursday it had struck a deal to acquire Reparenco, a Dutch paper and recycling company, saying it was a “strong strategic fit” with its existing European businesses and was expected to deliver “significant synergies in the near term in a number of areas”.

Credit ratings firm Standard & Poor’s said the deal would most likely be funded by Smurfit Kappa’s cash balances and drawings under existing debt facilities and that the move would not affect its debt grade.

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Merrion Capital analyst Darren McKinley said the purchase was "another reason for IP to consider raising its offer" for Smurfit Kappa. The US group's most recent cash-and-stock proposal, made on March 22nd, is currently worth €9.13 billion, or €38.60 per share.

Smurfit Kappa’s board rejected the proposal as “fundamentally” undervaluing the business and its prospects, after it outlined in February that it planned to invest €1.6 billion investing in its business and acquiring smaller rivals over the next four years.

Engagement

However, one of Smurfit Kappa's top shareholders, Janus Henderson Group, told the Financial Times it wants the Irish company, led by Tony Smurfit, to "either engage and get around the table with IP or give us reasons why you are not engaging".

Janus Henderson's European equities head, John Bennett, said that while his firm would not support an offer below €40 per share for Smurfit Kappa, it would urge the Irish company to work towards a deal above that level.

Meanwhile, Smurfit Kappa said Reparenco is expected to deliver €72 million of earnings before interest, tax, depreciation and amortisation (ebitda) this year.

“Reparenco has therefore been acquired for 6.4 times forward ebitda, which is a 20 per cent discount to Smurfit Kappa’s valuations,” said Mr McKinley at Merrion. “The acquisition will boost Smurfit Kappa ebitda by 5.1 per cent.”

Smurfit Kappa said earlier this month, before the Dutch deal was announced, that it expected its full-year earnings to be “materially better” than the €1.24 billion posted last year, amid strong demand for cardboard boxes in a growing economy and as costs of its key raw material has declined.

The company’s first-quarter results were helped by a €17 million drop year on year in the price of fibre from recycled corrugated cardboard boxes used to make much of the group’s new packaging.