The London-headquartered packaging giant’s offer price of €16.80 (£14.69) per Europac share values the entire share capital of the Spanish corrugated packaging and paper manufacturer at £1.45bn, with an implied enterprise value of £1.66bn.
DS Smith’s transaction expenses and the refinancing of Europac debt will be financed through a fully underwritten £1bn rights issue, along with a new committed debt facility of £650m.
The acquisition, which is anticipated to complete during Q4 2018, is conditional on the receipt of acceptances from Europac shareholders representing at least 50% plus one share of the entire share capital of Europac, receipt of regulatory approvals, and the approval of DS Smith shareholders.
Investors holding 59% of Europac’s shares have given undertakings to accept the offer, including key members of the Isidro family who own around 42% of the business, which in 2017 recorded revenues of £762m and had EBITDA of £139m.
DS Smith anticipates the acquisition to “create significant value” for customers and “consistent and attractive returns” for its shareholders.
The deal is also said to offer “exceptional scale opportunity” to enhance DS Smith’s customer offer in a key packaging growth region as well as an opportunity to develop Europac's packaging assets.
DS Smith chief executive Miles Roberts said: “Europac is a high-quality and substantial group, working in Portugal, Spain and France with 23 sites and over 2,300 colleagues.
“A number of years ago, DS Smith entered the Iberian market. We know the Europac business very well – we’re a customer and supplier to each other, and we know the management very well. We’ve been talking for a number of years but we both feel that now is the right time to seek to join our businesses.
“This acquisition will enhance our customer offer in western Europe, a key packaging growth region, and help us meet the rising demand for our high-quality packaging and sustainable products.”
Europac executive chairman José Miguel Isidro Rincón added: “Europac is a great company, well structured, strongly positioned with its customers and has a great management team. Iberia is the third largest packaging market in Europe and has great growth potential.
“In my capacity as shareholder, I believe that the offer submitted by DS Smith, which upon implementation would result in a combination with Europac, would deliver important operating and commercial synergies for both companies.”
DS Smith’s share price climbed by 3.2% following the announcement yesterday (4 June) to an all-time high of 580.6p but has since settled down to 577p at the time of writing.
Last year the group also acquired US-based Interstate Resources, its first fibre-based corrugated packaging business, and Romanian packaging and paper firms EcoPack and EcoPaper.
DS Smith will report its full-year results for the financial year ending 30 April 2018 later this month. In a pre-close trading update issued on 1 May, the group said it delivered strong performance in the period with continuing box volume growth, successful ongoing input cost recovery and good momentum in all regions.
Separately, the company has initiated a strategic review of its plastic packaging business as it increases its focus on the production of fibre products. The plastics division accounts for around 7% of group revenue.