Smurfit Kappa’s unwanted suitor to be sent packing with 12-month bid ban

The Irish Takeover Panel is set to slap a 12-month ban on International Paper (IP) making another approach for Smurfit Kappa, after the US group backed off from making a binding offer before Tuesday's deadline.

While shares in Smurfit Kappa, a FTSE 100 member, slumped 7.2 per cent on Monday in London as the Irish market remained closed for the bank holiday, they managed to close up 1.4 per cent at £29.20 on Tuesday.

Smurfit Kappa, led by Tony Smurfit, rejected two bids from Memphis-based IP this year – in February and March – for failing to capture the group's "intrinsic" business value and prospects. It also refused to enter into talks with its unwanted suitor.

The Irish Takeover Panel moved in the middle of last month to impose a so-called “put up or shut up” deadline of 7am on June 6th for IP to make a binding bid for the Dublin-based cardboard box-maker to try to limit the period of uncertainty for investors in both groups.

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Fundamentals

While some analysts speculated on Tuesday that IP may return to the pitch after 12 months, others were beginning to turn their focus on Smurfit Kappa’s own fundamentals. The group had signalled in recent months that it plans to invest €1.6 billion on deals and investment and that its 2018 results will be “materially better” than last year’s performance.

"We wouldn't be surprised to see another try in 2019 after the one-year ban on making a new bid expires," Joshua Zaret and Evan Lee, analysts at Bloomberg Intelligence, said in a report on Tuesday. "The deal would have expanded IP's international exposure significantly, given Smurfit's strong presence in European and Latin American corrugated-packaging markets."

Smurfit Kappa’s current €7.9 billion market value remains 16 per cent ahead of where it was in early March before news of IP’s first cash-and-stock offer emerged.

Bid deadline

Shares in IP have surged by as much as 9.4 per cent since late last week, when it started to become apparent that the already highly indebted company would not be meeting the bid deadline with a formal offer. There had been a fear among IP investors that the company might set financial discipline aside and go all-out to secure Smurfit Kappa as the industry is swept up by a flurry of deals.

On Monday, UK paper packaging group DS Smith announced that was acquiring Spanish cardboard box-maker Europac for €1.9 million, having forked out $1.1 billion (€940 million) last year on a US transaction. Elsewhere, US packaging company WestRock agreed in January to buy rival KapStone Paper and Packaging for about $3.5 billion, a year after snapping up Multi Packaging Solutions for $1.4 billion.