Smurfit Kappa, Dublin, Ireland, on Tuesday of this week (March 6, 2018) announced that it received an unsolicited proposal from International Paper Co., Memphis, Tenn.,USA, whereby International Paper would acquire Smurfit Kappa (headquarters photo below) and Smurfit Kappa shareholders would receive a combination of cash and a minority holding in the combined business. 

The Smurfit Kappa Board has carefully considered the proposal and believes it is in the best interests of the Group’s shareholders and other stakeholders to pursue its future as an independent company, operating as a European and Pan-American leader in paper-based packaging. Smurfit Kappa is a global producer of paper-based packaging with an established track record of consistently delivering strong and improving operating and financial performance. 

 

 

Smurfit Kappa recently announced a record EBITDA for 2017 of EUR1,240 million and a full year ROCE of 15%, and the underlying positive trading conditions have continued into 2018. As part of its year end results, Smurfit Kappa announced an acceleration of its investment program based on plans to improve its market position and strengthen its integrated model between 2018 and 2021.

  

The proposal fails entirely to reflect the Group’s strong growth prospects and attractive industry outlook, Smurfit Kappa noted.  

Smurfit Kappa is Europe’s largest producer of paper-based packaging. Europe contributed 75% of the Group’s annual earnings and, according to the Global Corrugated Forecast prepared by NOA PRISM for the International Corrugated Case Association (ICCA). European demand is forecast to grow at a CAGR of between 1.7% and 2.3% up to 2021.

 

Factors contributing to strong, sustained European demand growth and the emergence of corrugated as a highly sustainable transport and merchandising medium include: the substitution of plastic with paper-based packaging; the significant growth in e-commerce; and growing demand from discount retailers for shelf ready packaging.

Demand in Latin America, again according to the ICCA report, is projected to grow at a CAGR of between 3.3% and 4.6% from 2017 to 2021.

With its market leading positions across Europe and as the only major pan-regional producer in Latin America, Smurfit Kappa is uniquely positioned to capitalize upon projected industry growth.

With significant growth opportunities, both organic and through acquisition, the Group has previously announced a range of increased medium-term performance targets including:

• An objective to invest an incremental Eur1.6 billion to capitalize internal and external growth opportunities
• A medium-term, increased ROCE target of 17%
• A revised, lower target leverage range of 1.75-2.5x
• A continuation of an attractive and progressive dividend stream. 

The board, together with its advisers, has carefully evaluated the proposal and believes it:

• Is fundamentally opportunistic and conditional
• In no way reflects the Group’s true intrinsic business worth or its short, medium, or long-term prospects
• Would involve its shareholders receiving a high proportion of their consideration in the form of International Paper’s shares
• Significantly undervalues the Group’s asset, franchise, and replacement value
• Is significantly below the valuations set by recent industry transactions.

Liam O’Mahony, chairman of Smurfit Kappa said "the Smurfit Kappa Board has unanimously rejected this unsolicited and highly opportunistic proposal. It does not reflect the Group’s true intrinsic business worth or its prospects. We delivered a record performance in 2017 and underlying trading momentum has continued into 2018. The Group has a proven management team which we believe will deliver significantly greater value for shareholders on a stand-alone basis.

"The board believes that it is in the best interests of all stakeholders for the Group to pursue its future as an independent company, headquartered in Ireland, operating as the European and Pan-American leader in paper-based packaging. We strongly advise shareholders to take no action," O’Mahony continued.

The Smurfit Kappa announcement was made without the consent of International Paper. There can be no certainty that any firm offer will be made, nor any certainty as to the terms on which any firm offer might be made by International Paper.

Also, the announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of Smurfit Kappa is Michael O'Riordan, company secretary. The date and time of this announcement is the same as the date and time that it has been communicated to the media, at 7a.m. on March 6, 2018.