Rival offer could be vital for shareholders

SMURFIT Kappa has come a long way from the depths of the financial crisis. With a big debt pile and exposure to ailing consumer demand, its future then was uncertain.

But its fortunes were revived as it began a continuous cost take-out programme, deleveraged, saw its sales increase and profitability restored.

And now it’s become a takeover target.

International Paper has spotted an opportunity to establish a leading presence in Europe, a market where it’s a relatively small player. But how much does it really want it and how much will it be willing to pay?

There’s also an issue of the make-up of a potential transaction. Smurfit Kappa said that the proposal from International Paper was heavily share-weighted.

That’s something that could be an issue for some of Smurfit Kappa’s institutional shareholders, which include its single biggest – with about 7pc – Norway’s government pension fund. Others include Singapore’s sovereign wealth fund, GIC, with 3.1pc .

Some investors’ mandates may prevent them from owning US stocks.

“We don’t know the split between cash and stock, but I would have thought that the higher the cash element, the potentially more attractive it might be to shareholders, rather than simply taking International Paper stock,” said David Holohan, chief investment officer at Merrion stockbrokers. He also said that some shareholders unable to hold US stocks would benefit from a rival offer emerging for Smurfit Kappa.

“Broadly speaking, existing shareholders of Smurfit would be happy if a higher bid emerged, regardless of what their mandate is, because they would have the ability to sell into the market ahead of any transaction being closed, to avoid any challenges in the future.”

Smurfit Kappa could pursue another path to thwart International Paper: trying to cement its own merger with another peer.

But that would go against board’s determination to have an independent future.

Just how big a deal International Paper shareholders would be willing to back also has to be factored in to the whole scenario. One of the biggest shareholders the two companies share is Vanguard.

Any potential bidding war could make the whole thing seem too expensive.

Possible synergies would also have to be taken account of. Mr Holohan reckons they would be most readily achieved in areas such as head office operations and buying power.

Analysts have also pointed out how the approach from International Paper has shone a spotlight on a sector that could benefit from growing consumer resistance to plastic packaging, as well as a ballooning ecommerce sector.

“With a co-ordinated global fight against the use of plastics, the sector could well be ripe for consolidation,” said Mark van Dulken, head of research at Accendo Markets.