International Paper Company ("International Paper") is pleased to provide an update on its possible offer for DS Smith plc ("DS Smith"), pursuant to which International Paper would acquire the entire issued and to be issued share capital of DS Smith (the "Combination").
International Paper confirms that significant progress has been made in reciprocal due diligence as facilitated by the DS Smith Board and Management, and that it is now in a position to provide shareholders with more detail on the type and quantum of synergies it believes would arise from the Combination.
Corrugated packaging solutions is a core component of DS Smith's business. Due diligence has confirmed International Paper's belief that the Combination will significantly strengthen the combined packaging business and customer offerings — with packaging representing 84% of International Paper's current sales, approximately $1.5 billion (£1.2 billion1) of which is driven from European sales.
Commenting on the Combination, Mark Sutton, Chairman and CEO of International Paper, said: "Bringing International Paper together with DS Smith is a logical next step in International Paper's strategy to create value by strengthening our packaging businesses in North America and Europe. By combining the strengths of both companies, we believe we can enhance our offering of sustainable packaging solutions for customers in attractive and growing markets."
Also commenting, the CEO-Elect of International Paper, Andy Silvernail, said: "Upon being selected as the next CEO, International Paper engaged me in an advisory role that allowed me to have discussions with Mark and the Board regarding this strategic proposal. I am fully aligned with their views and supportive of the opportunity," Silvernail added, "I believe the combination of International Paper and DS Smith would create a winning position in renewable packaging and would be a strong catalyst to drive profitable growth and create value. I am highly committed to delivering the expected synergies associated with this opportunity as well as the other profit improvement initiatives in place throughout the Combined Group."
The International Paper Board continues to consider M&A in a disciplined manner and believes an acquisition of DS Smith is aligned with International Paper's strategy to enhance its corrugated packaging business in Europe and would create significant value for both DS Smith and International Paper shareholders.
Expected Synergies
International Paper expects that the Combination will generate significant synergies and drive compelling value creation for DS Smith and International Paper shareholders. The delivery of the synergies will be supported by International Paper's significant expertise in acquiring and integrating businesses. In addition, International Paper's confidence in delivering a successful integration is underpinned by DS Smith's own expertise in acquiring businesses and integrating them.
International Paper's Directors, along with its outside adviser, Merrill Lynch International ("BofA Securities"), have reviewed and analysed the potential synergies of the Combination. The potential synergies have subsequently been independently validated and sensitised as part of a Quantified Financial Benefits Statement under Rule 28.1(a) of the Code. Taking into account the factors they can influence, the Directors believe that the combined International Paper and DS Smith group (the "Combined Group") can deliver at least $514 million (£407 million[1]) of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following completion of the Combination ("Completion"). These synergies are expected to be derived from the following key areas:
These synergies are expected to arise as a direct result of the Combination and could not be achieved independently of the Combination.
International Paper anticipates that the total costs to achieve the synergies outlined above would be approximately $370 million (£293 million1). International Paper expects that approximately 33% of the synergies outlined above would be achieved by the end of the first year following Completion, with approximately 66% and 95% achieved by the end of the second and third years following Completion, all on a run-rate basis, respectively.
Aside from the oneoff costs referred to above, the International Paper Board does not expect any material dissynergies to arise as a direct result of the Combination.
This statement constitutes a Quantified Financial Benefits Statement under Rule 28.1(a) of the Code. The Appendix to this announcement also includes reports from International Paper's reporting accountant, Deloitte LLP ("Deloitte"), and its financial adviser, BofA Securities, in connection with the anticipated Quantified Financial Benefits Statement, as required pursuant to Rule 28.1(a) of the Code, and provides underlying information and bases for the reporting accountant's and adviser's respective reports. BofA Securities as financial adviser to International Paper, has provided its report for the purposes of the Code stating that, in its opinion and subject to the terms of the reports, the Quantified Financial Benefits Statement, for which the International Paper Directors are responsible, has been prepared with due care and consideration. Each of Deloitte and BofA Securities has given and not withdrawn its consent to the publication of its respective report in this announcement in the form and context in which it is included.
The International Paper Board believes these synergies will contribute to significant value creation for both DS Smith and International Paper shareholders. The Combination is expected to increase International Paper's margins through synergies and to be immediately earnings per share (EPS) accretive. Return on invested capital (ROIC) from the Combination is expected to exceed International Paper's weighted average cost of capital (WACC) by the end of the third year following Completion.
Plans for DS Smith's Operations & Headquarters
As part of the Combination, International Paper envisages that DS Smith's North American manufacturing locations and International Paper's European manufacturing locations would continue their respective operations. Though it is intended that the Combined Group would be headquartered and domiciled in Memphis, Tennessee, USA, at International Paper's existing headquarters, International Paper intends to maintain key elements of DS Smith's headquarters functions and is proposing to establish a European headquarters in London, United Kingdom, at DS Smith's existing headquarters (subject to any required information and consultation with any impacted employees and/or their representatives in accordance with applicable law).
Plans for Secondary Listing
As part of the Combination, any new International Paper shares issued to DS Smith shareholders will be authorised for primary listing on the New York Stock Exchange subject to official notice of issuance and International Paper intends to seek a secondary listing of its shares on the London Stock Exchange.
In accordance with Rule 2.6(a) of the U.K. Takeover Code, International Paper is required, by not later than 5.00 p.m. (London time) on 23 April 2024, to either announce a firm intention to make an offer for DS Smith in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code.
In accordance with Rule 2.5(a) of the U.K. Takeover Code, International Paper reserves the right to make an offer for DS Smith on less favourable terms than those set out in this announcement: (i) with the agreement or recommendation of the DS Smith Board; or (ii) if a third party announces (after the date of this announcement) a firm intention to make an offer or a possible offer for DS Smith which, at that date, is of a value less than the value implied by the Exchange Ratio. International Paper reserves the right to introduce other forms of consideration and/or vary the mix or composition of consideration of any offer.
This announcement has been made by International Paper without the prior agreement or approval of DS Smith.
This announcement is not an announcement of a firm intention to make an offer under Rule 2.7 of the Code and accordingly there can be no certainty that any transaction will proceed. A further announcement will be made if and when appropriate. Capitalised terms used in this announcement shall, unless otherwise defined, have the same meanings as set out in the announcement by International Paper dated 26 March 2024 of a possible offer by it for DS Smith.
TAPPI
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