International Paper Proposes £5.7 Billion Bid for DS Smith, Sparking Acquisition Battle

International Paper proposes £5.7 billion for DS Smith, intensifying bid war with Mondi and eyeing London listing.

By Alex P. Chase

4/4, 10:19 EDT
International Paper Company

Key Takeaway

  • International Paper Co. proposes a £5.7 billion bid for DS Smith, surpassing Mondi Plc's £5.1 billion offer, intensifying the acquisition battle.
  • The proposal includes a secondary London listing to attract UK investors, amidst London Stock Exchange's challenges in retaining companies.
  • International Paper estimates $514 million in annual synergies post-acquisition, aiming to strengthen its packaging business in North America and Europe.

Bidding War Emerges

International Paper Co., a major US packaging company, has made a significant move in the ongoing battle to acquire UK-based DS Smith Plc by proposing a £5.7 billion ($7.2 billion) offer. This proposal has intensified the competition with Mondi Plc, another British firm, which had previously proposed a £5.1 billion takeover. International Paper's strategy includes a potential secondary listing in London, aiming to appeal to UK investors who prefer London-listed shares. This move comes at a time when the London Stock Exchange is facing challenges in retaining and attracting companies.

DS Smith, known for its extensive production of cardboard boxes and packaging for various products, has seen its shares increase by over 30% in the past year, partly due to the heightened interest from potential acquirers. The paper and packaging sector has experienced significant consolidation, highlighted by the merger between Smurfit Kappa Group Plc and WestRock Co., creating a substantial industry player. This sector saw a surge in demand during the pandemic but has faced adjustments as consumer behavior shifts back to in-store shopping.

Offers and Synergies

International Paper's offer for DS Smith includes a share exchange ratio where DS Smith shareholders would receive 0.1285 shares in International Paper for each DS Smith share they own. This proposal represents a 48% premium over DS Smith's closing price before the initial approach from Mondi, which had offered a 33% premium. International Paper estimates that the merger could yield annual synergies of $514 million four years post-completion, at a cost of $370 million to achieve. Mark Sutton, CEO of International Paper, emphasized the strategic fit between the two companies, aiming to enhance their packaging business in North America and Europe.

Strategic Implications

The potential acquisition of DS Smith by either International Paper or Mondi presents strategic advantages and challenges. A merger with Mondi could create a European powerhouse in the packaging sector, leveraging complementary strengths in containerboard production and potentially reducing earnings volatility through synergies estimated at £350 million annually. On the other hand, International Paper's offer, despite being higher, raises questions about the extent of achievable synergies given its smaller European operation compared to DS Smith.

Management Quotes

  • Mark Sutton, CEO of International Paper:

    "Bringing International Paper together with DS Smith is a logical next step in International Paper’s strategy to create value by strengthening our packaging businesses in North America and Europe."