Smurfits in line for €126m payday from Madison Dearborn bid

Brothers Michael Smurfit and Dermot Smurfit, the two most senior members of Ireland's best-known corporate dynasty, look set for a major payout of about £91 million (€126 million), after US private equity outfit Madison Dearborn indicated it may bid for Finnish paper company Powerflute Oyj.

The US investor has made an approach for the company that values it at about £261.5 million. Dermot Smurfit, who is chairman of the company and founded it in 2004, and Michael Smurfit’s Isle of Man-registered Bacchantes, own more than 36 per cent of the company between them.

Powerflute, which is Aim-listed on the London Stock Exchange, told investors yesterday that the bidder was offering up to 85 pence a share for the stake held by the Smurfits, including an earn-out of up to 6 pence a share.

Madison Dearborn is offering other shareholders 90 pence a share. Powerflute said it was a “preliminary proposal” and added the standard rider to its statement that it was not certain that a final offer would be made by the US investor.

Powerflute also revealed, however, that Michael Smurfit, who owns more than two-thirds of the total Smurfit-controlled stake, is acting as an adviser to Madison Dearborn on its bid. It told investors that his Bacchantes vehicle may reinvest in Powerflute alongside Madison Dearborn. Dermot Smurfit, the company said, would exit if the deal is completed.

The proposal will be considered by the independent members of the company's board, which means Dermot Smurfit, and his son, GAN chief executive Dermot jnr, will absent themselves from those meetings. Powerflute is being advised by investment bank Rothschild and Numis Securities brokerage.

The Smurfits have a decade-long association with Madison Dearborn, which took Smurfit Kappa Group private while Michael Smurfit was chief executive, in a €3.5 billion deal in 2005.

The US group later sold the K Club, which was originally developed as a golf resort by Smurfit Kappa, to Gerry Gannon and Mr Smurfit. Gary McGann, who succeeded Mr Smurfit at the helm of SKG company, also serves on the board of yet another paper company, Multi-Packaging Solutions, alongside Madison executive Tom Souleles, who was previously on the SKG board.