Mega merger mulled

DS Smith receives Mondi approach

"Robust contingency plans" are in place at DS Smith
DS Smith’s share price was up by 13% in early trading this morning

DS Smith has confirmed that it has received a “highly preliminary expression of interest” from Mondi regarding a “combination”.

In a statement issued this morning (8 February) in response to media speculation, the London-headquartered packaging firm’s board said: “The board of DS Smith understands that Mondi is considering a possible offer for DS Smith although no proposal has been received at this stage.

“There can be no certainty as to whether any proposal will be made or the terms of any such proposal. A further announcement will be made if and when appropriate.”

The statement added that in accordance with Rule 2.6(a) of the [Takeover] Code, Mondi is required, by not later than 5pm on 7 March 2024, either to 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 Panel in accordance with Rule 2.6(c) of the Code.

DS Smith said its statement was made without the prior agreement or approval of Mondi.

Reuters said a combination between the two companies could create a paper and packaging giant with a market value of more than £9.96bn, with DS Smith’s market value standing at around £3.86bn as of yesterday’s close.

DS Smith’s share price was up by 13% in early trading this morning, but had settled back slightly to 315.4p at the time of writing around 11am, while Mondi’s shares were down by around 3% at 1,341p.

Updated: 1pm, 8 February 2024

Mondi has now confirmed that it is in the early stages of considering a possible all share combination with DS Smith.

In a statement, it said: "Mondi routinely considers various options within its disciplined capital allocation framework aimed at accelerating its growth in the structurally growing packaging sectors in which it operates.

"Mondi believes that a possible all share combination with DS Smith represents an exciting opportunity to create an industry leader in European paper-based sustainable packaging solutions."

It said a combination would mean it was well positioned to benefit from structural growth trends in sustainable packaging; it would benefit from enhanced vertical integration, bringing with it a balanced paper position, greater earnings resilience through the cycle and enhanced security of paper supply, for the benefit of both shareholders and customers.

Additionally, it said it would benefit from "substantial synergies as a result of vertical integration alongside highly complementary positions and expertise in containerboard, corrugated solutions and flexible packaging", in addition to expected benefits from economies of scale and efficiencies across a combined supply chain and administration.

The company continued: "Mondi's strategy is to deliver value accretive growth and, as noted above, adopts a disciplined approach to acquisitions and investment within its capital allocation framework. Any transaction with DS Smith would be assessed against this framework. Mondi remains committed to maintaining a strong and stable financial position supported by a solid investment grade credit rating and a dividend policy aimed at offering shareholders long-term dividend growth within the context of its stated cover policy."

Mondi said there can be no certainty that an offer will be made to acquire DS Smith, and that a further announcement will be made as and when appropriate.

Separately, DS Smith has been recognised for leadership in corporate transparency and performance on climate change by global environmental non-profit CDP, securing a place on its annual ‘A List’.

Based on data reported through CDP’s 2023 Climate Change questionnaire, DS Smith is one of a small number of companies that achieved an ‘A’ – out of over 21,000 companies scored.