Smurfit Set for Shareholder Showdown after Court Approval of Reorg Plan

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Smurfit Stone Container Corp., Chicago, Ill., USA, received bankruptcy court approval this past week to put its reorganization plan to a vote by creditors, setting up a showdown with shareholders who will be wiped out in the restructuring. According to a Reuters news report, Smurfit overcame or resolved 28 objections to its disclosure statement, which it must provide to creditors along with its proposed plan. Many of the creditors reportedly have indicated they favor the reorganization. The most vigorous objections came from shareholders and their arguments indicated the company could face a drawn-out fight to confirm its plan, Reuters noted.

Attorneys for two groups of shareholders, Reuters continued, attacked what they considered a lack of information about how Smurfit valued the company and the timeliness of the information that was used. "On the central issue of this case, which is valuation, this is as clear as mud," said Rachel Strickland, whose firm, Willkie Farr & Gallagher, represents two funds that hold preferred stock. Shareholders believe the company is underestimating its value and therefore wrongly denying them a recovery.

Smurfit disclosed this week a study done by the investment bank Lazard that estimated there was up to $3.3 billion that could be distributed to Smurfit claimants. The company has proposed paying $1.4 billion in cash to secured creditors and swapping its equity for bond debt. Judge Brendan Shannon said that many of shareholders' concerns relating to the company's estimated value would be addressed during the discovery process leading up to the confirmation hearing, which is scheduled to start on April 14, according to the Reuters report.

The hearing also gave parties affected by the closing of plants in Missoula, Mont., and Ontonagon, Mich., a chance to plead for more information about efforts to keep the mills open, the news report explained. Brian Schweitzer, the governor of Montana, had written the court to vent his frustrations over Smurfit's lack of disclosure about its plant in Montana. Smurfit buys 80% of the 2.5 million tons of residual wood material produced annually in the state, according to Schweitzer.