Smurfit Kappa in Negotiations with WestRock

Smurfit Kappa in Negotiations with WestRock for the Formation of a Paper and Packaging Powerhouse

On Thursday, Smurfit Kappa announced that it is in talks to merge with its U.S. counterpart, WestRock (WRK.N), creating a formidable partnership between two of the globe’s leading paper and packaging manufacturers.

The newly amalgamated entity, which would bear the name Smurfit WestRock, is set to be headquartered in Ireland, with its global base in Dublin. This merged company is also slated to be listed on the New York Stock Exchange. Although the financial specifics of the agreement were not disclosed in the initial announcement, Smurfit Kappa emphasized that definitive terms would be disclosed in a forthcoming statement. The merger, if it proceeds, will be contingent upon the approval of shareholders, meticulous due diligence, and regulatory clearance.

As part of the arrangement, WestRock shareholders would receive shares in the combined entity. In response to this news, Smurfit Kappa’s Irish-listed shares experienced a 2.16% decline as of 0900 GMT.

Smurfit, with operations spanning 22 European nations and 13 across South, Central, and North America, stands as Europe’s premier paper and packaging manufacturer. Conversely, WestRock holds the distinction of being the second-largest packaging company in the United States.

Based on current market valuations, the combined market capitalization of these two entities would approximate $19 billion. Over the 12-month period ending in June, they jointly generated revenues totaling $34 billion.

Credit Suisse research analysts conveyed their perspective that this proposed merger boasts substantial strategic and operational benefits. They highlighted its ability to bolster the company’s presence in the Americas, particularly in the rapidly growing Central American markets. In their research note, they underscored that the merger aligns well with the companies’ shared commitment to innovation-driven expansion in the realm of sustainable packaging.

Upon the completion of the merger, the combined entity, boasting roughly 100,000 employees, anticipates achieving pre-tax cost savings exceeding $400 million on an annualized basis within the first year. However, it’s worth noting that the merger is expected to incur one-time cash costs totaling approximately $235 million.

The merger is expected to facilitate the creation of a complementary portfolio, characterized by unique product diversity and innovative sustainability capabilities. This encompasses a broad spectrum of renewable, recyclable, and biodegradable packaging solutions, as stated in the Smurfit Kappa announcement.

The Irish company has seen notable growth during the COVID-19 pandemic, primarily fueled by increased demand for packaging goods and the surge in e-commerce activities during lockdowns. Nevertheless, it encountered challenges as economies reopened and producers scaled back on packaging stocks, resulting in a decline in first-half core profits reported last month.

In contrast, WestRock surpassed Wall Street expectations for third-quarter profit and reiterated its commitment to portfolio optimization and cost reduction efforts.

The merger, initially reported by The Wall Street Journal, is expected to be executed through an Irish scheme of arrangement, involving Smurfit Kappa and a merger of a subsidiary with WestRock, according to Smurfit Kappa’s statement. Additionally, Smurfit will delist from Euronext Dublin and cancel its premium listing on the London Stock Exchange as part of the deal, with its North and South American operations set to be headquartered in Atlanta, Georgia.

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