6 Apr. 2024: International Paper Company has provided an update on its possible offer for DS Smith, which would see the US company acquire DS Smith’s entire issued and to be issued share capital.
In a statement released today (4 April), International Paper has confirmed that significant progress has been made in reciprocal due diligence as facilitated by the DS Smith board and management, and said it is now in a position to provide shareholders with more detail on the type and quantum of synergies it believes would arise from the combination.
It said due diligence has confirmed International Paper’s belief that the combination would significantly strengthen the combined packaging business and customer offerings, with packaging representing 84% of International Paper’s current sales, approximately $1.5bn (£1.2bn) of which is driven from European sales.
Mark Sutton, chairman and CEO of International Paper, said: “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.
“By combining the strengths of both companies, we believe we can enhance our offering of sustainable packaging solutions for customers in attractive and growing markets.”
CEO-elect of International Paper Andy Silvernail added: “Upon being selected as the next CEO, International Paper engaged me in an advisory role that allowed me to have discussions with Mark and the board regarding this strategic proposal. I am fully aligned with their views and supportive of the opportunity.
“I believe the combination of International Paper and DS Smith would create a winning position in renewable packaging and would be a strong catalyst to drive profitable growth and create value. I am highly committed to delivering the expected synergies associated with this opportunity as well as the other profit improvement initiatives in place throughout the combined group.”
The International Paper board said it continues to consider M&A in a disciplined manner and believes an acquisition of DS Smith is aligned with International Paper’s strategy to enhance its corrugated packaging business in Europe and would create significant value for both DS Smith and International Paper shareholders.
Taking into account the factors they can influence, International Paper’s directors believe the combined International Paper and DS Smith group can deliver at least $514m of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following completion of the combination.
It said these synergies are expected to arise as a direct result of the combination and could not be achieved independently of the combination.
International Paper said it anticipates that the total costs to achieve the synergies outlined above would be approximately $370m.
As part of the combination, International Paper said it envisages that DS Smith’s North American manufacturing locations and International Paper’s European manufacturing locations would continue their respective operations.
Though it is intended that the combined group would be headquartered and domiciled in Memphis, Tennessee, in the US, at International Paper’s existing headquarters, International Paper intends to maintain key elements of DS Smith’s headquarters’ functions and is proposing to establish a European headquarters in London, at DS Smith’s existing headquarters.
As part of the combination, any new International Paper shares issued to DS Smith shareholders will be authorised for primary listing on the New York Stock Exchange subject to official notice of issuance and International Paper intends to seek a secondary listing of its shares on the London Stock Exchange.
As already stated last week, in accordance with Rule 2.6(a) of the Takeover Code, International Paper is required, by not later than 5pm on 23 April 2024, to either announce a firm intention to make an offer for DS Smith in accordance with Rule 2.7 of the Code, or announce that it does not intend to make an offer.
In this case, the announcement would be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code.
International Paper said this announcement “is not an announcement of a firm intention to make an offer under Rule 2.7 of the Code and accordingly there can be no certainty that any transaction will proceed”. It said a further announcement will be made if and when appropriate.
International Paper’s possible offer for DS Smith came despite Mondi and DS Smith reaching an agreement in principle on the key financial terms of a deal last month.
In accordance with the Takeover Code, Mondi was required either to announce a firm intention to make an offer for DS Smith in accordance with Rule 2.7 of the Code or to announce that it did not intend to make an offer, by the deadline of 5pm today.
But in a separate release this morning, DS Smith said its board has requested, and the Panel on Takeovers and Mergers has consented to, a further extension to the deadline, until 5pm on 23 April 2024. The deadline may be extended further with the consent of the panel in accordance with Rule 2.6(c) of the Code.
DS Smith said it is continuing discussions with Mondi regarding the combination but added there can be no certainty that any firm offer will be made.
DS Smith’s share price had reached another 52-week high at the time of writing at lunchtime today, of 410.60p, having climbed by nearly 2% on yesterday’s close. The 52-week low was 260.50p.
News by Richard Stuart-Turner, Printweek