Packaging Giants Join in $11 Billion Deal

12 September 2023 – Bloomberg

Smurfit Kappa Group Plc agreed to acquire WestRock Co. in an $11.2 billion deal that creates an Irish-American packaging industry powerhouse.

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. WestRock gained as much as 7.2% in US trading.

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 will comprise eight directors from Smurfit Kappa and six from WestRock.

Tony SmurfitPhotographer: Simon Dawson/Bloomberg

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.

Bowles, speaking in an interview with Bloomberg Television, said that Smurfit looked at other possible acquisitions but WestRock offered the best chance to increase its footprint in North America, which had been a “big gap” in the company’s portfolio.

“This is absolutely an opportunity to scale up in the US,” he said.

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.

When asked about potential antitrust risks, company executives said in a call about the deal that they didn’t expect any issues except perhaps in Mexico, where both Smurfit and WestRock have packaging assets.

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 and PJT Partners Inc. are advising Smurfit Kappa on the deal, while Evercore Inc. worked with WestRock’s board. Lazard Ltd. and Goldman Sachs Group Inc. advised WestRock.

— With assistance from Jacqueline Poh and Yiqin Shen