IP Issues Statement Regarding Possible Offer for Smurfit Kappa Group

Further to the announcement this week (see article directly above) by Ireland-based Smurfit Kappa Group, International Paper Co., Memphis, Tenn., USA, confirms that it has submitted a proposal to acquire the entire issued and to be issued share capital of Smurfit Kappa. Under terms of the proposal, Smurfit Kappa shareholders would be entitled to receive EUR 22.00 in cash and 0.3028 new International Paper shares of common stock for each Smurfit Kappa ordinary share held by them. 

 

 

Based on IP's closing share price of $58.94 as of March 5, 2018, and a EUR:$ exchange rate of EUR 1:$1.2343, the proposal values each Smurfit Kappa ordinary share at EUR 36.46. This represents a premium of approximately: 

• 27.4% to Smurfit Kappa's closing share price of EUR 28.62 on March 5, 2018 (being the last business day prior to the release of the announcement) 
• 28.4% to Smurfit Kappa's volume weighted average share price on EUR 28.41 since its Full Year Results on Feb. 7, 2018 
• 30.2% to Smurfit Kappa's closing share price of EUR 28.00 on Feb. 13, 2018 (being the last business day prior to IP’s initial approach to Smurfit Kappa) 
• 22.5% to Smurfit Kappa's all-time high share price of EUR 29.76 on Feb. 20, 2018.

In aggregate, the proposal values Smurfit Kappa's current issued share capital at approximately EUR 8.6 billion and would provide Smurfit Kappa shareholders with a shareholding of approximately 15% in International Paper post-completion (calculated by reference to the number of IP shares of common stock in issue as of March 5, 2018).

 

International Paper notes the comments that Smurfit Kappa believes the proposal is highly opportunistic. Given that Smurfit Kappa announced record EBITDA on Feb. 7, 2018, and recorded an all-time high share price of EUR 29.76 on Feb. 20, 2018, International Paper does not agree with this characterization. Indeed, by submitting the proposal after the release of Smurfit Kappa's Full Year Results and the Medium term Outlook (MTO), International Paper was able to take account of this information (and the market's reaction to it) when making its approach. Moreover, International Paper believes that the proposal provides Smurfit Kappa shareholders with the opportunity to crystalize value for their holdings in the near term (via the proposal's cash component) and also retain ongoing upside in the value creation of the transaction (via the proposal's share component).

International Paper believes that the transaction, if consummated, would be an excellent strategic fit that creates long-term value for both Smurfit Kappa and IP. The enlarged group would constitute a premier global packaging company that would be able to serve both local and global customers more effectively. The transaction would also create an opportunity to realize meaningful synergies through enhanced efficiencies, IP notes.

International Paper emphasizes that it takes a disciplined approach to acquisitions with clearly defined strategic and financial criteria. Any offer would have to meet its objectives of earnings per share accretion, free cash flow generation and a return on invested capital exceeding IP's weighted average cost of capital, while enabling IP to remain committed to a strong balance sheet over the long term.  

On Feb. 14, 2018, International Paper says it approached Smurfit Kappa and requested a meeting so that IP could put forward a specific proposal to Smurfit Kappa. Following further communication, initiated by IP, a meeting was arranged on Feb. 23, 2018. At that meeting, IP delivered the proposal and provided a written letter to be delivered to the Smurfit Kappa board of directors.

Last night (March 5, 2018) the proposal was rejected by the Smurfit Kappa Board. International Paper says it is disappointed that this was made public this morning, prior to further engagement between the parties to discuss the value creation potential of the transaction. Nonetheless, IP emphasizes that it remains ready to engage with Smurfit Kappa's Board and shareholders to discuss both the merits of its pProposal and the reasons why IP believes it provides the best near and long term value for Smurfit Kappa shareholders. 

International Paper says that it reserves the right to:

• Introduce other forms of consideration and/or, subject to the consent of the Irish Takeover Panel, to vary the composition of the consideration referred to above 
• Implement the transaction through or together with a subsidiary of International Paper or a company which will become a subsidiary of International Paper 
• Announce an offer (including a cash offer and/or a share offer) for Smurfit Kappa on less favorable terms than those set out in the proposal 

            o   with the agreement or recommendation of the Smurfit Kappa Board 

            o   if a third party announces an offer or firm intention to make an offer for Smurfit Kappa on less favorable                         terms 

            o   following the announcement by Smurfit Kappa of a whitewash transaction pursuant to the Irish Takeover                       Rules on less favorable terms 

• In the event that any dividend or other distribution is announced, declared, made or paid by Smurfit Kappa, reduce the cash and/or share component of its offer by the gross amount of such dividend or other distribution.

This announcement does not amount to a firm intention to make an offer for Smurfit Kappa under Rule 2.5 of the Irish Takeover Rules and, accordingly, there can be no certainty that any offer will be forthcoming. The proposal was made on an indicative and non-binding basis.

A further announcement will be made as and when appropriate.