Smurfit Kappa’s shares fall 10% after WestRock merger announcement

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Shares of Dublin-based packaging group Smurfit Kappa plunged 10% at Tuesday’s market open in London after it announced it would combine with U.S. peer WestRock to create an industry juggernaut.

The companies will form Smurfit WestRock — set to be one of the largest packaging companies in the world — run through a holding company incorporated and domiciled in Ireland.

It will seek a New York listing with a standard listing on the London Stock Exchange.

WestRock shareholders will receive one Smurfit WestRock share and $5 cash, equivalent to $43.51 per share, while Smurfit Kappa shareholders will receive one new share.

Smurfit Kappa investors will own approximately 50.4% of the new company.

FTSE 100 firm Smurfit Kappa said the deal is expected to be “high single digit accretive” to its existing earnings per share, and over 20% by the end of the first full year.

The paper-based packaging specialist was a pandemic beneficiary, boosted by the rise in e-commerce, and revenue and profits slipped in its 2023 first-half results.

“We’ve always said we had a very big gap in our portfolio because we were not involved in the United States. We’ve been looking over many years to figure out a way to get in there in a way that would reward our shareholders over the long term,” Smurfit Kappa CEO Tony Smurfit, who will lead the combined company, told CNBC’s “Squawk Box Europe.”

A robot builds pallets of cardboard boxes at the Smurfit Kappa March corrugated packaging factory.

Bloomberg | Bloomberg | Getty Images

“We identified [WestRock] as an asset that we can develop with and combine with to be an even better asset. So after a series of negotiations, we finally got to an agreement at 7:15 [a.m. London time] this morning to finally close out this deal, which I think is going to be fantastic for our shareholders in the long-term, medium and short-term.”

Smurfit said the combined company would opt for a New York primary listing as around 65% of revenues were set to be in the U.S. and Latin America, and because “multiples and the pool of capital over there is bigger for companies like ours.”

Asked whether the deal was a takeover rather than a merger, Smurfit said: “It’s a combination … We believe that both companies have incredible opportunities in their respective businesses. Obviously we are paying a premium and therefore the positions reflect that.”

The companies had a combined revenue of roughly $34 billion in the year to July, which would make Smurfit WestRock the largest listed global packaging firm by that metric.

“Although management have stressed the joint group’s unparalleled geographic reach, investors appear to have quite a few qualms about the risks ahead,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. This could include substantial upfront costs despite eventual efficiency savings, she said.

“There have also been some headwinds across the sector, since the pandemic e-commerce boom with customers destocking and the uncertain economic backdrop ahead is a little unsettling.”

Analysts at JP Morgan and Jeffries said the premium was higher than many Smurfit shareholders had been expecting, Reuters reported.

Smurfit Kappa shares were 8% lower at 1:46 p.m. London time.

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