Packaging giants, WestRock Co. and Smurfit Kappa Group Plc, have reached an $11.2 billion agreement to merge, forming an industry-leading entity headquartered in Ireland.
Shareholders Benefit: WestRock’s Deal for $43.51 a Share
Under the terms of the deal, shareholders of WestRock, based in Atlanta, Georgia, will receive an equivalent of $43.51 per share in a combination of cash and stock. This deal was announced in a statement issued on Tuesday. Dublin-based Smurfit Kappa shareholders will collectively own approximately 50.4% of the newly merged company.
Market Reaction: Smurfit Kappa Shares Dip
Following the announcement, Smurfit Kappa’s shares experienced a significant drop, declining by as much as 13% during early trading in Dublin. This reaction reflects investor concerns regarding the deal, which includes a 28% premium over WestRock’s closing stock price on the preceding Monday.
Leadership and Financial Strength of the New Entity
The merged company will operate under the name Smurfit WestRock, with Tony Smurfit serving as its Chief Executive Officer. Collectively, the new entity is expected to report adjusted 12-month revenues of approximately $34 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5.5 billion as of June 30, as stated in the announcement.
A Packaging Juggernaut
This union will create a packaging powerhouse offering a wide range of products, from corrugated storage boxes to beer carriers and e-commerce shipping materials.
Shift from Paper to Packaging
In recent years, forest industry firms have pivoted toward packaging, recognizing its potential due to the surge in online shopping. Meanwhile, the demand for paper has been steadily declining since the early 2000s.
Navigating a Downturn: Consolidation and Cost Reduction
The packaging industry is currently grappling with a downturn, following a period of growth in demand and profitability. The cyclical nature of the industry is affected by consumers curbing spending, resulting in reduced packaging demand. Over the years, the sector has also witnessed extensive consolidation efforts as market participants aim to achieve economies of scale, reduce costs, and better cater to large clients.
Trading Platforms for Ordinary Shares
Ordinary shares of Smurfit WestRock will be traded on the New York Stock Exchange and on the standard listing segment of the London Stock Exchange, as confirmed by the companies.
A History of Merger Talks
Smurfit Kappa has long been regarded as a potential participant in the industry’s consolidation. In 2018, it turned down a takeover offer from U.S. rival International Paper Co. The recent discussions between Smurfit Kappa and WestRock regarding a potential merger culminated in this deal, which has received unanimous support from the boards of both companies.