Smurfit Kappa Group Plc agreed to acquire WestRock Co. in an $11.2 billion deal that creates a packaging industry powerhouse domiciled in Ireland.
Shareholders of Atlanta, Georgia-based WestRock will receive the equivalent of $43.51 a share in cash and stock, according to a statement on Tuesday. Investors in Dublin-based Smurfit Kappa will own about 50.4% of the combined company.
Smurfit Kappa shares plunged as much as 13% in early Dublin trading as investors reacted to the prospect of a deal that includes a 28% premium to WestRock’s Monday close.
Smurfit Leaders
The new group will be called Smurfit WestRock and led by Smurfit Kappa management, including Tony Smurfit as chief executive officer, Irial Finan as chairman and Ken Bowles as chief financial officer. Its board with comprise eight directors from Smurfit Kappa and six from WestRock.
Combined, Smurfit WestRock will have adjusted 12-month revenue of about $34 billion and adjusted earnings before interest, taxes, depreciation, and amortization of $5.5 billion as of June 30, according to the statement.
Although WestRock generates more of the combined companies’ Ebitda, Smurfit’s profit margin is higher, which “is likely driving the leadership choice,” Bloomberg Intelligence senior analyst Richard Bourke wrote in a note this week.
The deal, which has been unanimously recommended by the boards of both companies, will create a packaging behemoth that provides everything from corrugated storage boxes to beer carriers and e-commerce shipping materials.
Forest industry companies have increasingly been turning to packaging from paper to benefit from the growth in online shopping while demand for paper has been in constant decline since the early 2000s.
Lower Demand
Following a couple years of growth in demand and profits, the highly cyclical industry is now in the throes of a downturn, as consumers paring back spending translates into lower demand for packaging. The industry has also been consolidating for years, as market players seek scale to cut costs and better serve large customers.
Ordinary shares of Smurfit WestRock will be listed on the New York Stock Exchange and on the standard listing segment of the London Stock Exchange, the companies said.
Smurfit Kappa has long been seen as a potential player in the consolidation of the industry. In 2018, it rejected a takeover attempt by US rival International Paper Co. Smurfit Kappa and WestRock said last week that they were in talks on a possible combination.
Citigroup Inc. is providing a bridge facility to fund the acquisition, which is expected to be refinanced through debt capital markets or other financing sources. The US bank is lead financial adviser to Smurfit Kappa on the deal, while Evercore Inc. and Lazard Ltd. and Goldman Sachs Group Inc. are working with WestRock.
--With assistance from Jacqueline Poh.
(Updates with details on board mix, advisers from fourth paragraph.)
