Packaging Giant International Paper Faces Financial and Operational Hurdles Amid Bid for DS Smith


International Paper's $7.2 billion bid for DS Smith signals industry consolidation and strategic London listing to win UK investor confidence.

By Mackenzie Crow

4/4, 10:19 EDT
International Paper Company

Key Takeaway

  • International Paper Co. bids £5.7 billion for DS Smith, potentially outmaneuvering Mondi Plc, signaling major industry consolidation.
  • Considers a secondary London listing to attract UK investors amid challenges in the London Stock Exchange and industry downturn.
  • Faces financial and operational hurdles with $514 million annual synergies against a $370 million cost, amidst competitive pressures and uncertain merger outcomes.

Battle for DS Smith

International Paper Co., the American packaging behemoth, has thrown its hat into the ring with a £5.7 billion ($7.2 billion) bid for UK-based DS Smith Plc, potentially upsetting a previously anticipated takeover by Mondi Plc. This aggressive move not only signals International Paper's ambition to expand its global footprint but also highlights the intensifying consolidation within the paper and packaging industry. However, beneath the surface of this corporate chess game lie several challenges and uncertainties that could cloud the future of this potential merger.

London Listing Consideration

In a strategic bid to appeal to UK investors, International Paper has floated the idea of a secondary listing in London, should its takeover of DS Smith succeed. This maneuver aims to mitigate concerns among UK-based shareholders reluctant to transition to New York-listed shares. Yet, this consideration comes at a time when the London Stock Exchange grapples with its own set of challenges, including underperformance, a scarcity of initial public offerings, and the departure of major corporations. This backdrop raises questions about the timing and potential effectiveness of such a move in winning over investor confidence.

Industry Headwinds

The paper and packaging sector, despite experiencing a pandemic-induced boom due to a surge in online shopping, is now facing a downturn as consumer habits shift back to in-store purchases. This decline in demand casts a shadow over the long-term growth prospects of the industry, potentially affecting the combined entity's future performance. Furthermore, the anticipated synergies from the merger, touted to deliver $514 million annually four years post-completion, come with a hefty price tag of $370 million to achieve. These figures underscore the financial and operational hurdles that lie ahead in realizing the promised value from this acquisition.

Competitive Pressures

The potential takeover has sparked speculation of a bidding war, particularly as shares in DS Smith and Mondi experienced slight upticks following the announcement. While a competitive bidding process could benefit DS Smith shareholders in the short term, it also underscores the fierce competition and consolidation pressures within the industry. International Paper's CEO, Mark Sutton, emphasized that merging with DS Smith aligns with the company's strategy to bolster its packaging business across North America and Europe. However, with DS Smith currently in discussions with both Mondi and International Paper, and a deadline looming for firm offers, the outcome remains uncertain.