In extending the unsolicited offer, IP indicates the proposal would provide SKG with the opportunity to “crystalize” value for the holdings in the short term, due to a cash purchase component while retaining an upside due to a share swapping component.
IP indicates the transaction, if completed, would be “an excellent strategic fit that creates long-term value for both Smurfit Kappa and International Paper.” The enlarged group would “constitute a premier global packaging company that would be able to serve both local and global customers more effectively,” IP states in the news release announcing the offer.
After some preliminary discussions between the two companies in February 2018, IP extended the offer, which SKG has rejected. In a March 6, 2018, statement rejecting the offer, SKG indicated the proposal does not take into account SKG’s “superior prospects as an independent business and represents a valuation multiple significantly below recent comparable transactions.”
Smurfit Kappa is Europe’s largest producer of paper-based packaging, and the continent contributed 75 percent of its annual earnings. According to the Global Corrugated Forecast prepared by NOA PRISM for the International Corrugated Case Association (ICCA), European demand is forecast to grow at a compound annual growth rate (CAGR) of between 1.7 and 2.3 percent to 2021.
While IP, one of the largest forest products companies in the world, does very little business in Europe, the region is a significant part of SKG’s business.
In highlighting its strengths and why it chose to summarily reject IP’s offers, SKG stated many factors contribute to strong, sustained European demand growth and the emergence of corrugated as a highly sustainable transport and merchandising medium, including the substitution of plastic with paper-based packaging, the significant growth in e-commerce and growing demand from discount retailers for shelf-ready packaging.
Demand in Latin America, again according to the ICCA report, is projected to grow at a CAGR between 3.3 and 4.6 percent between 2017 and 2021.
With its market leading positions across Europe and as the only major pan-regional producer in Latin America, SKG is uniquely positioned to capitalize upon projected industry growth, according to SKG.
In rejecting the proposal, SKG’s boards claims the offer does not reflect the company’s short-, medium- and long-term prospects and undervalues its assets.
“The board of Smurfit Kappa has unanimously rejected this unsolicited and highly opportunistic proposal,” comments Liam O’Mahony, SKG chair. “It does not reflect the group’s true intrinsic business worth or its prospects. We delivered a record performance in 2017 and underlying trading momentum has continued into 2018. The group has a proven management team which we believe will deliver significantly greater value for shareholders on a standalone basis.”