If Wall Street is calling it right, it looks like Smurfit and Stone are going to sort out the financial hiccup that led to speculation a couple of weeks ago that the merger might have to be shelved. Stone shares are up and JS Corp shares are down in the past week - enough said!
Apart from Michael Smurfit and the rest of the Smurfit board, it's harder and harder to find anybody in the market who doesn't subscribe to the view that this $4 billion (£2.7 billion) (sorry, it's now worth only $2 billion) merger is a far better deal for Roger Stone than Michael Smurfit.
It saves Stone from a precipitous financial position and leaves Smurfit with a one-third stake of a packaging company whose financial profile is "challenging", as Standard & Poor's (S&P) describe it, in a masterful bit of understatement.
And that's apart altogether from the ludicrous deal under which Morgan Stanley gets a handsome payoff while other JS Corp shareholders get very little apart from shares of dubious value in the merged group. JS Corp shares mightn't be the most valuable pieces of paper right now, but they carry an awful lot less debt that the $7 billion borrowings that Smurfit Stone paper will have to support.
It was instructive that when S&P put Smurfit and Stone on creditwatch on the very day that American Banker reported difficulties with the key $4.8 billion syndicated loan, the agency put Smurfit on creditwatch for a possible downgrade and Stone for a modest upgrade. And the reasons cited by S&P for the creditwatch notice are the same as those that have led other analysts to question the value of the merger for months: the containerboard market is sick mainly due to the Asian crisis which has led to lower US exports and lower prices; the market value of the assets that the merged group will have to sell has fallen to a level where those asset sales will have to be postponed or lower prices will have to be accepted; higher interest rates for "non-investment grade companies" - meaning companies like Smurfit Stone which have to accept penal interest rates on syndicated loans or else try and raise cash in a junk-bond market that has been dead in the water for the best part of two months.
