Mega deal agreed

DS Smith agrees £5.8bn takeover by International Paper

"Robust contingency plans" are in place at DS Smith
The combination is expected to become effective in Q4 2024

The boards of London-headquartered packaging giant DS Smith and US company International Paper have reached agreement on the terms of a recommended all-share combination from International Paper that values DS Smith at £5.8bn.

The confirmation today (16 April) follows weeks of activity between the two companies, and comes after an earlier offer made by Mondi had been agreed in principle.

The companies said the deal would “bring together complementary businesses to create a truly global sustainable packaging solutions leader, with industry leading positions in two of the most attractive geographies of Europe and North America”.

The combined company said its focus on sustainable packaging makes it well-placed to serve a broad set of customers “across a wide range of attractive and growing end-markets”.

The International Paper board said the deal is strategically and financially attractive, represents “a compelling opportunity” to accelerate the delivery of International Paper's strategy, and expands the combined positions of both businesses in corrugated packaging solutions globally.

The board said it also enhances International Paper’s profitable growth by strengthening its global packaging business, and provides both sets of customers with more choice and a superior portfolio of products across two continents.

Under the terms of the deal, DS Smith shareholders will be entitled to receive 0.1285 new International Paper shares for each DS Smith share.

The terms of the deal value each DS Smith share at 415 pence per share, based on the closing International Paper share price of $40.85 (£32.83) and £/US$ exchange rate of 1.2645 on 25 March 2024, being the close of business on the last day prior to the announcement by DS Smith of a possible offer by International Paper.

The offer value implies DS Smith’s entire issued and to-be-issued share capital is valued at approximately £5.8bn on a fully diluted basis and DS Smith’s enterprise value at approximately £7.8bn.

Upon completion of the deal, DS Smith shareholders will own approximately 33.7% and International Paper shareholders will own approximately 66.3% of the combined company. In connection with the combination, International Paper will also seek a secondary listing of its shares on the London Stock Exchange.

The International Paper Board believes the combination would be expected to deliver at least $514m of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the effective date; and would increase International Paper's margins and to be earnings per share (EPS) accretive in year one.

DS Smith’s directors, who have been advised by Goldman Sachs International, Citi and JP Morgan Cazenove as to the financial terms of the combination, consider the terms of the combination to be fair and reasonable.

The DS Smith directors intend to recommend unanimously that DS Smith shareholders vote in favour of the scheme at the Court Meeting and the resolutions relating to the combination at the DS Smith General Meeting, as the DS Smith directors “have irrevocably undertaken to do” in respect of their entire beneficial holdings of 885,191 DS Smith shares, in aggregate, representing approximately 0.06% of the issued share capital of DS Smith as of yesterday (15 April).

The International Paper directors have unanimously approved the combination and intend to recommend that International Paper shareholders vote in favour of the issuance of the new International Paper shares in connection with the combination. BofA Securities has acted as financial adviser to the International Paper directors in relation to the combination.

The combination, which is expected to become effective in Q4 2024, is conditional on several factors including shareholder approval and the receipt of merger control and regulatory clearances, including from the European Commission and US authorities, and the receipt of foreign direct investment clearances from UK and Italian authorities.

It is also conditional on confirmation having been received by International Paper that the new International Paper shares have been approved for listing, subject to official notice of issuance, on the New York Stock Exchange; and acknowledgement having been received by International Paper that the application for admission has been approved and that the International Paper shares will be admitted to trading on the main market for listed securities of the London Stock Exchange.

Mark S Sutton, chairman and CEO of International Paper, said: “Combining with DS Smith is a logical next step in International Paper’s strategy to drive profitable growth by strengthening our global packaging business.

“DS Smith is a leader in packaging solutions with an extensive reach across Europe, which complements International Paper’s capabilities and will accelerate growth through innovation and sustainability. We are confident this combination will drive significant value for our employees, customers, and shareholders.”

Miles Roberts, group CEO of DS Smith, added: “The combination with International Paper is an attractive opportunity to create a truly international sustainable packaging solutions leader that is well positioned in attractive and growing markets across Europe and North America. It combines two focused and complementary businesses.

“DS Smith has grown significantly through a dedication to customers, focus on innovation, quality of packaging and high levels of service. In a dynamic sustainable packaging landscape, the combination will enhance our global proposition to customers, create opportunities for colleagues and drive value for shareholders who can remain fully invested in such an exciting business.

“I am proud of all that DS Smith has achieved to date and am sure that the business will continue to flourish as part of a combined group with International Paper due to the capability and continued commitment of our colleagues.”

DS Smith’s share price was down by around 2% on yesterday’s close at the time of writing shortly before lunchtime today, at 401.60p. However, this is down from a 52-week high on Friday of 415p and still significantly above where it was before late March. The 52-week low was 260.50p.